Rising output will keep a lid on the oil price

published 20 December 2019

Oil has hit a three-month high above $65 a barrel following Trump's China trade deal. That is a level not seen since September's drone attack on Saudi Arabia briefly knocked out some 5% of global supply.

Brent crude is up about 21% for the year, but still below April's 2019 high of $74.5. Oil bulls were given further cheer when Saudi Aramco's stock briefly soared above the symbolic valuation level of $2trn on the Saudi Tadawul index, notes Avi Salzman for Barron's.

Yet Bernstein analysts reckon that at current prices the company is worth closer to $1.36trn. Political influence makes it "hard to argue that Aramco's current price is a true market price'".

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Oil exporters' cartel Opec gave further encouragement to the bulls this month after agreeing to new production curbs, says Sarah Toy in The Wall Street Journal. The oil cartel and allies will cut output by 500,000 barrels a day until April, adding to an already existing 1.2 million barrels per day cutback.

Yet the oil rally stalled at the start of this week because of scepticism over whether the deal will truly reduce global supplies next year. Nigeria and Iraq are already struggling to honour existing commitments.

The International Energy Agency expects global oil inventories to rise by 700,000 barrels per day in the first quarter of 2020 due to weak global demand and rising output in non-Opec states. That could keep a lid on oil.

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.