Oil above $50, OPEC, and Russia vs. Europe

Oil rose above $50 a barrel today as as Kuwait and Qatar indicated they will implement supply cuts announced by OPEC last month.  Then there's that whole thing about Russia cutting natural gas shipments to Europe.

The Long Oil (DIG) and Short Oil (DUG) ETFs had the following perfomance for the day on the oil related activity:

Kuwait and Qatar plan to curtail oil shipments to Asia starting in January, refinery officials in the region said today, after OPEC agreed on a record output reduction on Dec. 17. OAO Gazprom cut gas deliveries to Europe through Ukraine to less than one-third of normal, a NAK Naftogaz Ukrainy spokesman said.

“The OPEC production cuts really are material and there’s not that much of a risk that either compliance is so poor that the cuts don’t turn out to be substantial or that they make the cuts but they’re still not enough to raise prices,” said Tim Evans, energy analyst with Citi Futures Perspective in New York.

Oil for February delivery rose 34 cents, or 0.7 percent, to $49.15 a barrel at 11:50 a.m. on the New York Mercantile Exchange. Earlier, it touched $50.47, the highest since Dec. 1.

Russia and Ukraine blamed each other for the cuts as gas shipments from OAO Gazprom through Ukraine plummeted and deliveries to the Balkans were halted. The conflict caused U.K. gas prices to jump as much as 27 percent. NAK Naftogaz Ukrainy Chief Executive Officer Oleh Dubina said he would return to Moscow on Jan. 8 to resume talks.

“Russia continues to play hardball with Ukraine on the natural gas contract,” said Olivier Jakob, managing director of Petromatrix Gmbh in Zug, Switzerland. “If a solution for a return to normality is not found very quickly, this should result in incremental demand on fuel oil, naphtha, heating oil to substitute for the missing natural gas.”

SOURCE: Bloomberg.com