US shale will put a cap on the oil price

Opec members are notorious for cheating on their production quotas. Indeed, cheating is so rife that 50% to 60% compliance is considered pretty good, says Spencer Jakab in The Wall Street Journal. But this time round the oil cartel’s discipline is better. According to JCB Energy, compliance with the cuts agreed late last year is around 88%.

That’s pretty good news for oil bulls, who have already seen the price more than double to $55 a barrel since early last year. Throw in a better outlook for demand as the US-led global economy is expected to strengthen a little, and the big glut is gradually being soaked up.

But how far can the rally go? As the International Energy Agency’s executive director Faith Birol points out, US production is set to rise as increasingly cost-efficient shale drillers grab market share. At present, the US oil industry is adding more new rigs every month than at any point in the past two years.

Producers in Brazil, Mexico and China are also profitable at $50-$55 a barrel. It may not be long, then, before a rise in production slows and caps the oil rebound.


Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.