In two days of round-the-clock talks in Algiers, the group agreed to drop production to 32.5 million barrels a day, according to a delegate briefed on the matter who asked not to be named because the decision isn’t yet public.
In reaction, global oil prices surged.
“Any sneeze, rumour, innuendo or intrigue immediately sends financial speculators for the buy button,” he told the Star Wednesday night. “Generally speaking, the impact will be felt almost immediately… Traders are giddy but motorists won’t be.”
This is all based “on a what-if situation,” said Roger McKnight, one of Canada’s leading energy experts with EN-PRO International Inc. “I’m skeptical because the Saudis have increased production to record levels in August and now they want to cut back,” he said. A 700,000-barrel cut would still leave a 500,000-barrels-a-day surplus “floating around the world with nothing to do.”
“It’s a large trial balloon the size of a Zeppelin.”
McKnight predicted that a higher price of crude will be good for Alberta’s oil sands and the shale industry in Saskatchewan, and will help boost the loonie. He did not believe the OPEC deal would help Canada’s eastern manufacturing operations, however.
The deal will also reverberate across the globe, say experts, brightening prospects for the energy industry, from giants like Exxon Mobil Corp. to small U.S. shale firms, and boost the economies of oil-rich countries like Russia and Saudi Arabia.
“The cut is clearly bullish,” said Mike Wittner, head of oil-market research at Societe Generale SA in New York. “What’s much more important is that the Saudis appear to be returning to a period of market management.”
The stakes for OPEC, which pumps 40 per cent of the world’s oil, are high as the International Energy Agency has warned of a weak petroleum market next year. Ian Taylor, the head of Vitol Group BV, the world’s largest oil-trading house, said that the crude market could remain oversupplied until 2018 unless producing countries stop flooding the market.
While Russia participated in the Algiers talks, it is not party to the OPEC deal.
McKnight is also curious to see how the move to cut production, which is to be finalized Nov. 8, will affect the U.S. presidential election.
“That should be very interesting,” he said. “I’m sure it will come up in the debate.”
Dan McTeague, a Senior Petroleum Analyst for Canada with GasBuddy.com predicted the following increases per litre of gas following the OPEC announcement.
Vancouver: 5 cents
Interior B.C.: 10 or 11 cents
Calgary: 13 cents
Edmonton: 12.5 cents
Regina / Saskatoon: 10 cents
Winnipeg: 9 cents
Toronto: 3 cents
With files from Bloomberg