VIENNA, AUSTRIA (NEWS 1130) – In an all-out effort to restore OPEC’s faded clout, the 14-nation cartel made a move this morning to end infighting and agree to cut output by 1.2 million barrels a day for the first time in eight years. As a result, crude prices surged.
The international benchmark for oil soared $3.56, or 7.7 per cent, to $49.97 a barrel amid signs that oil ministers were now focusing less on whether there would be a cut and more on how it would be shared among members.
A cut will likely have a lasting impact on consumers as oil price increases feed into the cost of car fuel, heating and electricity. It could also restore some authority to OPEC as an arbiter of prices and supplies after years of inconclusive meetings undermined by infighting.
Senior gas analyst at Gasbuddy.com Dan McTeague says drivers in the Vancouver area should brace themselves for higher gas prices. “[This] could translate into about a two to three cent a litre increase at this point, but we don’t know all the details and that could mean even higher prices come Friday. If you’re not liking the $1.13/L or $1.15/L you’re paying, you may want to think about filling up before Friday because that’s when it will certainly have an impact to the negative for consumers.”
In September, OPEC laid out the contours of a cutback ministers needed to sign off on today. That agreement aims to pare over 1 million barrels a day off total OPEC production, which is now over 33 million barrels a day. If implemented, it would send a signal that the cartel, which accounts for about a third of the world crude output, is once again focused on regulating supplies and prices after years of inaction that dented its image.
Even a full OPEC cut will not restore crude prices to the levels over $100 that a barrel fetched in June of 2014, before increased output from the US and other non-OPEC countries led to oversupply.
OPEC then opted to pump at high volumes instead of throttling production, in an attempt to maintain market share and drive U.S. shale oil and gas producers with higher operating costs, out of business.
Crude prices plunged as a result. In January, they fell below $30 a barrel for the first time in over a decade before rising to levels now that are still less than half of their mid-2014 peak.