OPEC’s decision to cut daily oil output by 1.2 million barrels will put the oil market in a supply deficit, according to GAM’s Roberto Cominotto.
‘Global oil inventories have stagnated or declined over the past six months, pointing to a balanced supply/demand situation,' he said.
‘The announced OPEC production cut will result in an oil market supply deficit in early 2017 which will drive inventories lower and prices higher.’
Cominotto said he expects global oil supply to stagnate or slightly decline over the next three to four years and believes this will keep the oil market in a tight supply situation until the end of the decade, or even longer.
‘Market participants are skeptical that the oil price recovery can continue on fears of US shale oil flooding the market when prices approach $50.
‘In our view, this overestimates the impact of US shale oil production on the global oil market. Representing only 5% of global oil production, US shale oil producers would need to grow their output at a dramatic rate to have a strong impact on the global oil market.’
Cominotto said he only forecasts this scenario if oil prices trade around $70 per barrel for a sustained period.
Elsewhere, Cominotto said the recent cut means shale oil and gas companies have become a more attractive investment.
‘Conventional oil producers are in the midst of an unprecedented capex reduction cycle which is only just beginning to have an impact on their production volumes and reserve replacements.
‘North American shale oil producers, with their ability to react quickly to changes in commodity prices, are likely to be the main beneficiaries of the sector emerging from one of its worst crises.’
However, Cominotto said North American natural gas prices could trade materially higher over the next couple of months, following years of extremely low drilling activity.
‘If the current winter turns out to be normal or colder than normal, supply will struggle to keep up with demand.
‘Shale oil and gas service companies will benefit from increased activity and improved service pricing which has already started to become apparent in the current quarter.’