Newspaper article THE JOURNAL RECORD

Crude Oil Futures Surge to over $17 / in Reaction to OPEC

Newspaper article THE JOURNAL RECORD

Crude Oil Futures Surge to over $17 / in Reaction to OPEC

Article excerpt

NEW YORK - Oil prices surged above $17 a barrel Monday in reaction to an agreement by the Organization of Petroleum Exporting Countries to limit production in a glutted market.

However, analysts questioned how long the cartel can enforce the pact and they differed on whether consumers will pay more for gasoline in the near future.

Oil-futures traders reacted to the OPEC agreement by sharply bidding up the price of some grades. In Europe, Britain's North Sea crude for February delivery rose more than $1.50 a barrel to $18, though the price slipped back later to the $17.40 level.

On the New York Mercantile Exchange, the February-delivery price for West Texas Intermediate, an important market indicator, rose $1.01 a barrel to $17.22. Unleaded gasoline rose just under 1 1/2 cents a gallon to 46.06 cents, and heating oil rose more than 2 cents a gallon to 47.25 cents.

OPEC voted Saturday to cut production by 7.6 percent to about 15.8 million barrels a day, which is the lowest ceiling in the cartel's 26-year history. The group also agreed to fix its prices at higher levels averaging $18 per barrel.

The strategy theoretically could reduce the estimated 300 million barrels of excess oil in the market by about 2 million barrels a day, which could eradicate that surplus in less than six months, some analysts said.

This would give OPEC enormous influence over prices, which have tumbled 50 percent over the past year to the $14-$16 level, cost the 13-member cartel an estimated $50 billion in revenue and led to tremendous political and economic pressures on its members, especially in the Middle East.

"It seems to me there's a lot of resolve out there on the part of OPEC to live up to this agreement," said Gordon Pye, an oil industry economist for Irving Trust Co. in New York. "Having looked down the mouth of the cannon for most of 1986, that fear will stay with them for quite awhile."

Stephen Smith, oil analyst for the economic forecasting firm Data Resources Inc. …

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