Oil shares surge as oil price leaps on potential OPEC deal

Will they cut or won’t they cut? It’s not interest rates this time, but the proposed production cut by the Organization of the Petroleum Exporting Countries (OPEC).

In the last few months the planned production cut to tackle the current oil supply glut has been on and off countless times, ultimately causing wild swings in oil prices.

Overnight oil prices jumped to a three-week high after the Wall Street Journal reported that energy ministers from Iraq and Iran plan to back the proposal.

The two nations have gained a reputation for being the most reluctant to cut output, so with them now allegedly on board a deal at its November 30 meeting looks plausible.

As a result WTI crude oil for December delivery closed 3.9% higher at US$47.49 a barrel and Brent crude oil closed 4.4% higher at US$48.90 a barrel.

This is undoubtedly great news for Australia’s oil and gas producers and I wouldn’t be surprised to see the shares of Beach Energy Ltd (ASX: BPT), Oil Search Limited (ASX: OSH), Santos Ltd (ASX: STO), Woodside Petroleum Limited (ASX: WPL) all rally higher today.

But I wouldn’t get overly excited by the prospect of OPEC coming to an agreement. Whilst oil prices will get a lift in the short term if an agreement is made, I don’t expect it will last too long.

There are still a great number of shale oil producers in the United States that are offline. If prices rise as a result of an agreement, I don’t believe it will be long until we see them operating again and driving the price lower.

That is of course if OPEC can come to an agreement. The oil cartel has a terrible track record when it comes to production cuts. Thankfully with the meeting just over a week away we won’t have long to wait now before the matter is settled. Expect oil prices to remain volatile between now and then.

Finally, instead of risking your money in volatile oil shares I would suggest investors focus on these growth shares for smart investors. Do you own them?

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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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