How OPEC has sent the oil price and shares rocketing

Santos Ltd (ASX:STO) could be a big mover today after OPEC agreed to its first production cut in eight years, sending oil prices surging higher. But will they stay at these levels?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Australia's leading oil producers will be on watch today following the surprise news that the Organisation of Petroleum Exporting Countries (OPEC) has come to an agreement to cut production for the first time in over eight years.

According to Bloomberg, OPEC has agreed to reduce output by approximately 1.2 million barrels a day by January 2017 in an attempt to tackle record global inventories and boost prices. This will bring the cartel's overall daily output down to 32.5 million barrels a day. Non-member Russia has also agreed to cut back on production by 300,000 barrels a day.

The agreement has already had the desired effect and sent oil prices surging higher. Overnight WTI crude oil climbed 9.6% to $US49.57 a barrel and Brent crude oil increased 8.6% to $50.36.

This will no doubt be great news for shareholders of the likes of Santos Ltd (ASX: STO), Woodside Petroleum Limited (ASX: WPL), Beach Energy Ltd (ASX: BPT), and Oil Search Limited (ASX: OSH).

Their respective shares had come under heavy selling pressure this week as doubts over a cut from OPEC surfaced. But they now look set to follow in the footsteps of European and North American energy shares which soared overnight.

Whilst the OPEC production cut is a great boost for oil prices in the short term, I'm not entirely convinced that they will remain high in the long-term.

As prices rise I expect more low-cost shale oil producers in the United States to come online and increase production. Unfortunately for Australia's oil producers this could offset the OPEC production cut and drive prices lower again.

For this reason I won't be gambling on oil shares in 2017. There are far better and less risky areas of the market to invest in my opinion.

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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »