‘Upward drift’ likely for oil prices

‘Upward drift’ likely for oil prices

The Organisation of Petroleum Exporting Countries’ (OPEC) recent decision to reduce oil production suggests oil prices have hit their low point and an albeit constrained improvement is on the cards, according to AMP Capital.

In a note to investors, AMP Capital chief economist Shane Oliver noted that the OPEC decision was the first time in eight years the member nations had agreed to cut production.

“The reported agreement will see production cut to around 32.5 to 33 million barrels per day (mbd) from around 33.25 mbd in August, but the details and individual country targets won’t be agreed until OPEC’s next meeting in late November,” Mr Oliver said.

The decision is not a guarantee that oil prices will improve, but Mr Oliver said it “adds to confidence that we have seen the low in the oil price”.

“That said, while the oil price has bounced 6% or so on the news, it’s just normal volatility and the oil price remains below its June high of US$53 a barrel,” he added.

“Expect a bit of an upwards drift in the oil price but constrained demand growth, the prospect of shale oil production picking up again as the oil price pushes through break-evens for such producers.”

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