While equities slid, oil had a successful first quarter, gaining around 5% and eclipsing $70 a barrel, a three-year high. Oil prices have now risen for three successive quarters for the first time since 2010. Production cuts agreed by oil exporters' cartel Opec and Russia have helped mop up much of the global glut, as have upward revisions to demand estimates.
Wood Mackenzie, a consultancy, expects demand growth of 1.7 million barrels per day (mbpd) in 2018, the fifth-highest annual figure this century. Meanwhile, political chaos in Opec member country Venezuela has reduced output there, making the Opec cutbacks more effective.
The inventory surplus in the OECD, an association of developed countries, has fallen below 50 million barrels, down from 300 million a year ago, notes OilPrice. Bulls have drawn encouragement from Opec signals that the output-cut agreement with Russia could be extended by another six months to June 2019, while renewed sanctions on Iran following a US withdrawal from the nuclear deal would also curtail global supplies.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Nonetheless, oil has yet to move decisively beyond $70, and it probably won't. US shale-oil output is still climbing, helping to propel total US output to a fresh record high of 10.4 mbpd last week. And there's more where that came from: the US rig count is close to a three-year high.
Meanwhile, the biggest oil-producing companies and countries have become more efficient, which is lowering their "breakeven" price, JP Morgan's Christian Malek told CNBC; this will fall to approximately $50 by the end of next year, from the mid-$60s now, he reckons. Supplies could also rise because Opec members may be tempted to cheat on their quotas to maximise revenues, as they have often done in the past. The upshot? $70, according to Malek, "is as good as it's going to get".
-
House prices rise 2.9% – will the recovery continue?House prices grew by 2.9% on an annual basis in September. Will Budget policies and ‘higher-for-longer’ rates dent the recovery?
-
Nvidia earnings: what to expectNvidia announces earnings after market close on 20 November. What should investors expect from the semiconductor giant?
