OPEC oil cut: What Canadians need to know

Oil prices headed toward the $50-per-barrel mark Friday, buoyed by a surprise agreement earlier this week from the Organization of the Petroleum Exporting Countries to cut oil outputs. But the announcement from the world’s largest oil cartel will have little effect on Canada’s oil and gas sector.

OPEC announced Wednesday it had reached an agreement in principle to cut output by about 700,000 barrels per day.

And while it was OPEC’s first output cut in eight years, analysts say it won’t be enough to offset the glut in oil supply that caused crude prices to crash in mid-2014 from highs above $100.

WATCH: OPEC agrees to cut production but what will it mean for Alberta?

1:41 OPEC agrees to cut production but what will it mean for Alberta?

“It looks more like much ado about nothing,” said Dan McTeague, a senior petroleum analyst for GasBuddy.com. “It’s a small amount and probably won’t do enough to re-balance the glut in oversupply. You need a 10 per cent cut, not a 2 per cent cut.”

McTeague said that while there has been a jump in the price of oil at the pumps in Ontario and Vancouver, the rest of western Canada will still see a rise of 7 to 13 cents a litre over the weekend.

How will the OPEC cut affect Alberta’s oil patch?

David Hobbs, head of research at the King Abdullah Petroleum Studies and Research Center in Riyadh, Saudi Arabia, said the OPEC cut is still not enough to spur new development in Alberta’s beleaguered oil and gas sector.

“If we think about the impact on Alberta more particularly, it’s not the dawn of a new era of high oil prices,” Hobbs told Global News at the Global Business Forum in Alberta. “The cost of many of the resource developments in Alberta require sustainable prices above the level they are at now.”

READ MORE: Oil prices soar lifting Canadian dollar to four-week high

McTeague and Hobbs said there were still challenges before OPEC sits down at a formal meeting in November to hammer out production quotas for each member and other details.

There is also the question of how non-OPEC countries including Russia and the U.S. will react to the deal.

Russia has said it would find a way to freeze production if it manages to reach a deal with OPEC, while the U.S. has said is doesn’t believe plan would ultimately work.

Amos Hochstein, the U.S. energy envoy, told  Reuters that price gains from the cuts would trigger higher U.S. production that ultimately defeats the deal.

*With files from Jeff Semple and Reuters