Immediate reaction is mixed on the outlook for oil prices after the 172nd meeting of the Conference of the Organization of Petroleum Exporting Countries decided to extend production cuts for a further nine months from July 1.
Opinion is divided on whether the price of oil will fall, rise or remain stable. Richard Robinson, manager of the Ashburton Global Energy Fund, says the extension could cause an accelerated reduction in OECD inventories.
The combination of normalised inventories, tight supply and a market that is historically very short of energy, could set the scene for a strong reaction of the oil price as the year progresses, he believes.
The only way is up
The most basic law of applied economics indicates that any increase in demand at a time of reduced supply will be reflected in the price. By this reading, the only way is up. Or, at least, not down.
Andrew Slaughter, executive director at the Deloitte Center for Energy Solutions, is widely quoted saying seasonal demand growth and the extension of the cuts will reduce global stocks. This will probably set a new floor for crude oil prices in the low $50 per barrel range.
But Michael Baxter, economics spokesmen for The Share Centre, a UK retail stockbroker, could almost be heard shrugging his shoulders as he delivered his verdict.
"It would be unfair to describe OPEC as irrelevant, it is merely mostly irrelevant,” he says. “It may decide to cut this, or not do that, but the oil price remains in a range that is roughly half the price of three years ago.”