How Russia, OPEC May Have Just Driven Up Gas Prices

Deal cuts output for first time in 15 years
By Rob Quinn,  Newser Staff
Posted Dec 1, 2016 5:39 AM CST
Updated Dec 1, 2016 6:31 AM CST
Oil Price Soars After OPEC, Russia Deal
A man rides a camel through the desert oilfield and winter camping area of Sakhir, Bahrain.   (AP Photo/Hasan Jamali, File)

It's a victory for international agreement, but not for consumers: OPEC nations and Russia have managed to overcome their differences because of their common desire to drive up oil prices, Reuters reports. They have agreed on their first joint output cut since 2001, a move that sent the price of crude oil up around 10% on Wednesday. The Russians and Saudis announced a deal earlier this year, but skeptics found it hard to believe fellow OPEC members Iran and Iraq would come on board. They did, though they'll be giving up less than other cartel members. In total, OPEC says it will cut its output by 1.2 million barrels a day, while the Russians say they'll cut theirs by 300,000. A roundup of coverage:

  • The AP reports that even with the cuts, there's likely to be more supply than demand, meaning that the return of $100-a-barrel oil is not on the horizon, though US consumers may see small rises soon. "The average Joe filling up his tank may notice in the next week or two that gas prices move higher by 5 to 15 cents a gallon just on the psyche of the deal," says GasBuddy analyst Patrick DeHaan.

  • The Wall Street Journal reports that the deal will cut world oil production by around 1% if all parties stick to the agreement—and that is a big if. Enforcement of the agreement is expected to be a big problem, and analysts say the Russians in particular might not cut or even freeze production, especially not if prices keep going up.
  • Analyst Chris Weafer tells CNBC that the announcement of the deal was "very weak in detail," and it appears that Russia will be able to simply reduce its stated 2017 production targets and pass it off as a cut.
  • Shares in US shale oil producers soared after the deal was announced, reports Fortune, which notes that the agreement "will effectively end the price war started by Saudi Arabia two years ago in its efforts to wrest market share back from US."
  • Saudi Energy Minister Khalid al-Falih said before a deal was reached that the country was willing to take a "big hit" on production. "I think it is a good day for the oil markets, it is a good day for the industry," he told reporters Wednesday, per Reuters. "It should be a good day for the global economy. I think it will be a boost to global economic growth."
  • An editorial in the Independent says the deal "may have done the world a good turn" by bringing historic enemies Saudi Arabia and Iran together, and by giving the renewable energy industry a boost.
  • The Financial Times reports that the future now looks brighter for US shale producers, who could end up being the biggest winners from the deal. Other winners include brokers who benefited from "frenzied" trading in oil futures after the agreement was announced.
(More OPEC stories.)

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