Oil pushes through $51 US a barrel, gas price hikes not far behind

Expect gasoline prices to rise five cents a litre overnight at pumps in Ontario and Quebec and four cents in Vancouver and Western Canada after the price of oil pushed through $51 US a barrel on Thursday, says analyst Dan McTeague.

Canadian dollar climbs and oilpatch ebullient on news, but consumers may not be so happy

A worker checks the valves at Al-Sheiba oil refinery in southern Iraq. OPEC producers, including Iraq, are pulling back on production, and that has led to a rally in oil prices. (Reuters)

Gasoline prices are likely to rise five cents a litre overnight at pumps in Ontario and Quebec and four cents a litre in Vancouver and Western Canada after the price of oil pushed through $51 US a barrel on Thursday, says petroleum analyst Dan McTeague.

The oil rally that followed an OPEC agreement to cut production is pushing up the price of crude, and gasoline prices usually aren't far behind.

McTeaque of says gasoline prices will go up another three cents a litre in Eastern Canada on Saturday and another four cents a litre in Western Canada.

"I think these increases will stick around for a while and lead up to the Christmas period when, on Jan. 1, Ontario and Alberta will both be putting in place their carbon taxes — good for 4-5 cents a litre," he said in an email to CBCNews. 

West Texas Intermediate crude, the main North American oil contract, closed at $51.06 US a barrel, up $1.62, after trading as high as $51.80 earlier in the day. 

Brent crude, the primary international contract, was up another 3.6 per cent to $53.74. Western Canada Select, a Canadian contract, was up $2.22 to $36.06 US.

That's good news for the Canadian dollar and oilpatch companies, which have laid off employees and pulled back on investment in the face of low prices.

Canadian oil CEOs were optimistic, saying they might be able to start drilling again if oil remains in the $50 to $55 a barrel range.

In late afternoon, the Canadian dollar was trading at 75.07 cents US, up two-thirds of a cent from yesterday.

On Wednesday, the Organization of the Petroleum Exporting Countries agreed to cut its daily oil production by 1.2 million barrels to 32.5 million barrels a day.

It marked the first time since 2008 that the oil cartel had pulled back on output. In addition to OPEC's reduction, it said it expected another 600,000 barrels a day to be pulled out of the markets by non-OPEC producers, including Russia.

Too much oil being produced

The world has a huge oversupply of crude that has forced the price down from over $100 two years ago to below $30 a barrel in January.

So the news that less would be produced pushed oil prices up by nine per cent on Wednesday, with WTI closing at $49.44 a barrel.

But analysts warn the rally is likely to be short-lived.
Supertankers are being used as floating oil storage vessels because of glut of oil in the world. (Henning Gloystein/Reuters)

When the OPEC cuts take effect in January, the glut could continue, unless global demand for oil grows more than expected.

Initially oil will be taken from the storage tanks and oil tankers where it has been stored for months as the oversupply mounted.

And recovering prices and news that OPEC is pulling back will open an opportunity for U.S. shale producers, who are preparing to produce more.

Dan Smith of Oxford Economics said he was skeptical the OPEC cuts would be fully implemented.

His forecast for crude prices is moderate.

"The prospect of prices falling much below $40 US per barrel have lessened due to OPEC's agreement, but cutting supply in a weak demand environment is probably not going to be enough to drive prices back above $60 per barrel  in the near future, especially given the threat of higher U.S. output," he wrote in a note to clients.