Opec is caught between a rock and a hard place as production cuts are extended

Even if its actions force an increase in prices, America's frackers will jump in, and reap much of the benefit

Opec has extended its production cuts (Reuters)

Some relief for the Bank of England when it comes to inflationary pressures: It doesn’t look like fuel prices will be adding to them.

Prior to Opec's latest meeting, some analysts had suggested tougher production curbs could be on the way. Take Michele Della Vigna, for example. The commodity equity business unit leader in Europe, the Middle East and Africa, for Goldman Sachs, told CNBC on Wednesday that an extension of the previous restrictions was “the base case” but that Opec “could surprise with deeper cuts”.

Turns out he was right about the base case. The existing quotas, in force for six months, will now be extended for another nine.

The problem facing the oil producing cartel was that its initial reduction failed to shrink stockpiles around the world and thus to have a meaningful impact on price.

The early reaction to its follow up move suggests that this latest attempt to change that, and put a little extra fuel into the price tank, may be similarly doomed, assuming the cartel manages to hold the line against those of its members that feel hard done by and those that might be inclined to cheat.

Oil prices fell in response to the by now traditional early leak of the news, although not steeply, with traders remaining unimpressed.

Opec is in difficult situation. Even were the restrictions to succeed beyond its wildest dreams by booting prices back up, its members won't have all that long to enjoy the extra revenues.

Rise too much above $52 and America’s frackers start getting busy. It’s at that point that they can afford to boost production. They stand to reap as much benefit from production cuts as do Opec's members.

If that wasn’t bad enough, the long term outlook is even worse, as electric cars, and self driving cars, herald the belated beginnings of the digital revolution in motor transport.

Don’t believe it? Science fiction? Just think how much the world has changed in the past five years, consider the scale of the disruption we have seen during that time. It could easily creep up and be with us sooner than we think.

At the same time, energy from renewable sources is getting progressively cheaper and more efficient, and the only people not to have noticed are luddites – Ukip members with shares in BP, and some of the more backward looking members of the UK government they’re secretly planning to vote in favour of.

It’s a long time since the Opec lion has roared, but if even some of the more modest predictions come true, it will become a mouse that can’t squeak (assuming it isn’t that already).

Even oil majors like the aforementioned BP have noticed that the growth in demand is slowing. Some forecasters have taken to predicting that crude could sink to as low as $25 within five years or so. That British fracking bonanza people keep talking about? It might not happen, and if it does, it might not be with us for long.

Who knows, if it all happens quickly enough the planet might even be spared the worst predicted consequences of global warming.

Here’s hoping.