Opec must resign itself to $50 oil

Opec will manage its members’ output to keep the oil price between $45 and $55 a barrel because this is the highest range it can realistically achieve.

The prediction from Legal & General Investment Management anticipates that, even at these comparatively low prices, the US shale industry will add almost a million barrels per day to its oil production each year between now and 2020.

“It’s a trade-off for Opec between volume and price,” said John Roe, head of multi-asset funds. Members of the organisation could seize a larger proportion of oil sales by increasing output, he said, but prices would fall. Such a strategy would probably not succeed in putting shale producers out of business because the shale industry has proved more resilient to low oil prices than expected.

“Given that demand is relatively insensitive to price, we see significant benefits to limiting production and supporting prices,” he added.

Unless there are new supply disruptions or a dramatic fall in demand, Opec will need to maintain the production cuts it announced in November 2016 until 2020, said Roe.

©2017 funds global mena

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