Opec deal said to cut risk of oil price fall

Oil refineryA recent agreement by Opec to cut production lowers the risk of a fall in the price of oil, which is currently trading at more than $50 per barrel of Brent crude.

“At the very least, we think the deal greatly reduces downside risk to prices,” said Greg Sharenow, a portfolio manager for US asset manager Pimco.

At its meeting on November 30, Opec agreed to a production target implying a reduction in oil production of up to 1.4 million barrels a day. The proposed cut was larger than expected and fuelled a rally in which the oil price rose by about 15%.

However, there are concerns some members of the cartel will not comply with the promised cuts, thus undermining the scheme.

“To gauge compliance, we’ll be watching producers’ actual loading schedules and physical loadings with keen interest, given that the official selling prices from Saudi Arabia were not particularly discouraging for refiners,” said Sharenow.

Another concern is that a rising oil price will trigger more investment and more production from shale oil producers, which would counteract the effect of Opec’s lower volumes.

Despite these worries, Pimco predicts an oil price “in the low- to mid-$50s” for 2017.

©2016 funds global mena

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