Oil prices rocket on OPEC hopes: Is it time to buy oil shares?

Australia’s leading oil producers are amongst the best performing shares on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) this morning following a rise in oil prices overnight.

According to CNBC oil prices jumped almost 6% on speculation that the Organization of the Petroleum Exporting (OPEC) will agree to cut production later this month in an effort to reduce the current supply glut.

Brent crude oil was up 5.6% to US$46.93 a barrel and WTI crude oil rose 5.8% to US$45.81 a barrel. A welcome relief for oil producers after prices dropped to three-month lows on Monday.

As a result Beach Energy Ltd (ASX: BPT), Oil Search Limited (ASX: OSH), Santos Ltd (ASX: STO), and Woodside Petroleum Limited (ASX: WPL) have all seen their shares rise accordingly. At the time of writing Beach Energy is the pick of the bunch with a 5.5% jump to 81.2 cents.

Whilst I am sceptical that OPEC will agree to limit output at its November 30 meeting, the market clearly believes it is a real possibility.

I believe if OPEC is able to come to an agreement to cut output then we will see a short-term rise in oil prices. That possibly sends prices beyond recent highs.

But a rise in oil prices is likely to cause more shale-oil producers in the United States to come on line, ultimately driving the price lower once again.

For this reason I see the oil industry as a very risky place to trade and certainly not a place to invest your hard earned money. Instead I would suggest investors look to other areas of the market such as the information technology or healthcare sectors.

These rapidly growing shares would be far better options for investors in my opinion. Strong earnings growth and fully franked dividends makes them all great buys today as far as I'm concerned.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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