By Andrei Skvarsky.
Mihir Kapadia, chief executive of London-based Sun Global Investments, argues that OPEC’s November 30 deal to cut oil production will serve to push up oil prices to levels that could make 2017 “one of the best years to invest in oil stocks in quite some time”.
“Oil is pitched to recoup and recover well into the $60 benchmark within the first half of the year,” London-headquartered communications consultancy Sterling Media quoted Kapadia as saying in a statement. Brent ended 2016 at $56.65 per barrel, and there have been suggestions that the $60 mark may be surpassed within weeks.
However, what other analysts say suggests it is unlikely that investors will be in a rush to buy oil stocks. There have been doubts, for instance, that the OPEC deal will work in the first place, and an anticipated increase in US shale oil industry output will most likely result in oil prices getting capped.
“Will OPEC members stick to their commitments?” British daily The Independent quoted market analyst Neil Wilson as saying.
Furthermore, “we have to take on faith”, Wilson said, that Russia will stick to its commitment to cut production by the 300,000 barrels a day that the agreement prescribes. “And will that be from 2016 levels or what it had expected to pump in 2017?” he wondered. Nor, he added, was it clear how other non-OPEC members would behave.
As for the US shale oil industry, The Economist magazine says the sector’s expected output increase with consequent limits on prices “may not happen as swiftly as some think” but Charles Perry, chief executive of Texas-based natural gas consultancy Perry Management, appears to think otherwise.
Perry has been quoted by Dow Jones-published website MarketWatch as saying that “shale drillers have good backlogs of undrilled but proven leases, and they can get rigs and other equipment quickly”.