Five ways the OPEC oil deal affects you

A $US60 a barrel oil price would add about 10¢ per litre to petrol. Photo: Patrick Cummins The OPEC deal has lit a fire under energy stocks. Photo: Fairfax
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Saudi Arabia’s resources minister Khalid Al-Falih talking to journalists before OPEC’s meeting in Vienna overnight. Photo: Ronald Zak

Oil prices have surged overnight as the international cartel of oil-producing countries, OPEC, agreed to cut production for the first time in eight years.

The deal, which also involves non-member Russia and exempts members Iran, Libya and Nigeria, will see output reduced by 1.8 million barrels per day over six months.

The increased price of oil is expected to have worldwide ramifications, and Australian consumers should expect to pay once local prices catch up with oil prices.

Here are five ways OPEC’s decision will affect you.  Bad news for gas guzzlers 

“The days of super cheap prices are over,” said CommSec Chief Economist Craig James.

While record-low petrol prices at the bowser might stay put for the time being, motorists should expect to be hit hard over the coming months as consumer prices catch up with the price of oil.

If prices continue towards $US60 per barrel, consumers should expect to see a roughly 10¢ per litre increase, Mr James said.  Flying high  

Travellers can breathe a sigh of relief thanks to airlines hedging against short-term movements in oil prices.

It would take sustained price hikes over the coming months for airfares to be affected but it is too early to tell is this will eventuate, Mr James said.

Additionally, airlines will have a delayed reaction to any price hikes thanks to insulating measures, so only time will tell if airfares are set to increase.

However, Qantas was one the worst performing stocks on the Australian share market on Thursday morning, falling 3.6 per cent in early trade.  Inflation 

An increase in oil prices will only compound the inflammatory effects of a rise in iron ore and coal prices, as well as stronger growth in the US, China and India.

“Clearly this is what a number of central banks wanted anyway,” Mr James said.

“It’s hardly a negative development at the moment, which is very much an improvement from continuing to worry about deflation or disinflation.” The Aussie Dollar

While oil prices can affect the Aussie dollar, it’s more at the mercy of the US Federal Reserve, which will decide on an interest rate hike in the coming fortnight.

“That’s the one thing that certainly motorists and transport operators in Australia need to watch out for,” said Mr James.

“A double-whammy that the oil prices continue to push their way higher but the Australian dollar goes lower, and if you have both those developments, clearly there’s more of an impact in terms of the cost of fuel here in Australia.” OPEC deal could boost Aust petrol prices by ~5c/litre..but impact limited as don’t see a lot of upside to world oil price… pic.twitter苏州美甲培训/5G9C05HNjG— Shane Oliver (@ShaneOliverAMP) November 30, 2016Fuel for the share market 

Energy stocks have had a strong rally worldwide thanks to news of the OPEC agreement, including on the ASX.

Santos opened up 10.7 per cent, with Oil Search rallying 7.6 per cent and Woodside also up 6.5 per cent. BHP Billiton, which has a diverse portfolio including petroleum, will also rally off the back of increased oil prices, analysts said.

The questions now is how high oil prices actually go. Especially since shale oil producers in the US will likely restart some of their rigs if the West Texas Intermediate stays above $US50 a barrel, according to OANDA Australia and Asia Pacific senior market analyst Jeffery Halley.

“Going forward oil will most likely struggle to sustain a $55/60 range,” he said.

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