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OIL AND GAS
OPEC-fueled oil price rally means higher gas prices
by Daniel J. Graeber
Washington (UPI) Dec 27, 2016


OPEC, Russia talk gives oil prices a boost
New York (UPI) Dec 27, 2016 - A year-end gain in crude oil prices on the first full trading day after the Christmas holiday was boosted by OPEC and signals from a top Russian oil producer.

Crude oil prices have edged higher since late November when members of the Organization of Petroleum Exporting Countries agreed to production cuts starting in January. Oil prices had dropped below $30 per barrel on supply-side strains and the agreement is designed to bring balance back to the market more than prop up crude oil prices.

Most analysts see few reasons to doubt major producers like Saudi Arabia will deviate from their commitments, which would account for the bulk of what OPEC plans for production cuts. Last week, Russian President Vladimir Putin himself vowed to respect the terms of an agreement that counts on non-OPEC members for a good deal of the managed declines.

The price for Brent crude oil gained 0.65 percent at the start of a holiday-lightened trading week in New York to $55.52 per barrel. West Texas Intermediate, the U.S. benchmark price for oil, gained 0.85 percent to open the day at $53.47 per barrel.

Gazprom Neft, one of the largest oil producers by volume in Russia, said it planned to slow production growth next year to meet the terms of the OPEC-led agreement.

"It is quite possible we will decide to freeze production at some wells," CEO Alexander Dyukov told reporters.

The company said production growth for next year, however, was planned at around 4.5 percent. Output for 2016 was more than 7 percent greater than the previous year.

The U.S. dollar index, meanwhile, edged slightly higher for Tuesday, which could drag on the rally as the increased value of the greenback diminishes buying power overseas. The rally may be supported in part by word that OPEC and other parties to the agreement are scheduling monitoring meetings for mid-January in Abu Dhabi.

Elsewhere, Libyan production could undermine broader OPEC efforts to remove excess barrels from the market. Libya is exempt from the production agreement outlined by OPEC.

U.S. retail gasoline prices continued moving higher as the year winds down, but some relief may come with the start of the new year, AAA reports.

The motor club reports an average retail price for a gallon of regular unleaded gasoline at $2.29, relatively unchanged from the previous day, but up 4 cents per gallon, or 1.7 percent, from last week. For all but three days in the last month, retail gasoline prices have increased, according to AAA's data.

Retail gasoline prices move more or less in coordination with crude oil prices, which are up $8.50 per barrel, or 18 percent, from one month ago. Crude oil prices have been steady above the $50 per barrel mark since a late November agreement from the members of the Organization of Petroleum Exporting Countries to cap production starting next week.

On the domestic front, AAA said in its weekly retail market report that Western U.S. states, which typically comprise the most expensive market in the country, saw supply constraints as gasoline supplies dropped in response to issues at regional refiners and stronger demand from Latin America.

"Oil prices along with a drop in supplies and increase in demand over the busy holiday travel period are likely to result in rising prices at the pump," AAA reported for the region.

California gas prices are the second highest after Hawaii at $2.70 per gallon for Tuesday.

The Great Lakes states remain the most volatile in the region and Michigan takes the lead with the highest price increase from last week at 14 cents, or 6.2 percent. AAA reports a unit at BP's refinery in Whiting, Ind., the largest in the region, went down last week and limited production by about 16 percent.

Looking ahead, AAA said gasoline demand typically declines once the year-end holiday season ends, which could bring some relief to consumers at the pump. Starting Jan. 1, OPEC is expected to start a managed decline, though questions remain over how many parties to the agreement will comply.

The price for gasoline on this date last year was $2 per gallon. Even with the increase, AAA estimates prices moving into New Year's Day will be the second-cheapest since 2009.


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