Why the oil price is falling on OPEC doubts

Santos Ltd (ASX:STO) and Beach Energy Ltd (ASX:BPT) could be in the red today after OPEC doubts caused oil prices to fall. Are more declines on the way?

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Australia’s leading oil producers will be on watch today after oil prices fell from one-year highs overnight.

Following a 15% rise since November 30, Brent crude oil fell 1.8% to settle at US$53.93 a barrel and West Texas Intermediate fell 1.7% to US$50.93 per barrel.

According to the Wall Street Journal the drop is the result of growing scepticism in the market over the proposed production cut by the Organization of the Petroleum Exporting Countries (OPEC).

Recent data has shown that OPEC increased its output in November up to the day of its meeting. This increase in output is expected to make it harder for the oil cartel to hit its cutback targets. As a result, a number of analysts expect OPEC will cheat on the new quotas agreed to last week.

The prospect of oil prices surging to US$60 a barrel has given AWE Limited (ASX: AWE), Beach Energy Ltd (ASX: BPT), Oil Search Limited (ASX: OSH), Origin Energy Ltd (ASX: ORG), Santos Ltd (ASX: STO), and Woodside Petroleum Limited (ASX: WPL) a huge lift in the last week.

But if this increase fails to materialise, I wouldn’t be surprised to see these oil producer’s shares come tumbling down.

Further pressure on prices could come tonight when the U.S. government updates the market on its oil stockpiles. This data is predicted to reveal a further increase in stockpiles which I believe will weigh on prices.

All in all I would recommend investors stay clear of the oil industry at this point in time. OPEC may well come good and drive the price up in the short term, but in the long-term U.S. shale oil looks likely to drive prices lower again.

Instead of risking your money in oil, I believe there are a great number of high quality shares in the healthcare and information technology industries which investors could focus on.

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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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