Last week was a historic moment for oil markets, with OPEC announcing that it would cut the group’s daily output. This was the first time in eight years that the cartel has reduced its production. Overall, OPEC is looking to trim its output from 34 million barrels/day to 32.5 million barrels/day. More specifically, all countries, except for Iran, Libya, Nigeria and Indonesia will reduce their production by 4.6% from October levels. The agreement will take effect on January 1, 2017 and will be valid for six months. What’s more, the deal is subject to a supporting cut in production of 600,000 barrels/day for non-OPEC nations.
The announcement is the big news story this week and has generated numerous reactions:
Rob Taylor from Canoe Financial pointed out that OPEC has historically honoured its agreements. What’s more, he notes that in 1986 when OPEC cut production by 7% (compared to 4% now), crude oil prices increased 50% in the next six months.
Several banks have revised their crude oil forecasts upward and we anticipate that other banks will update their outlooks in the coming weeks. For example, ABN AMRO (AS:ABNd) changed its expected crude price to 65 USD/barrel for 2017.
OPEC members and certain non-members are meeting on December 10th to discuss a potential production cut for non-members.
With oil prices seeing the largest weekly increase in 15 months, we invite clients to contact us to discuss their hedging strategies for fuel expenses in CAD/L. In these historic times, diesel prices have increased by 5 cents CAD/L over the past week.
