In the first hour of trading on Thursday 1st December 2016 Glencore and Premier Oil (AIM listed) were the top two most traded. Indeed, five of the top six most traded stocks in that first hour were oil producers.
It has sent the price per barrel soaring too, Brent Crude now sitting comfortably above the $50 mark (correct as at 13:30 on 1st December 2016).
However, while this is creating a trader’s paradise there is a cautionary note to consider about the longer-term impact on the UK economy.
“A higher oil price can make things tougher for UK consumers”
Speaking after the announcement, Michelle McGrade, Chief Investment Officer at TD Direct Investing, said:
“It’s been clear for some time that the low price of oil has been hurting oil producers. So in my view it was a matter of time before OPEC decided to cut production. So far these are words only though, proof of whether they will act accordingly is yet to be seen.
“A higher oil price, together with a strong US dollar makes things tougher for UK consumers because not only will petrol be more expensive but this combination could fuel a stronger surge in inflation than originally expected. Inflation is highly correlated to the oil price.”
Source: Bloomberg as at 30th September 2016
Past performance is not a reliable indicator of future returns
The managers of the Guinness Global Energy fund say a reduction in OPEC and non-OPEC production now provides a clear path to a tightening oil market next year. “There is a precedent for this, looking back to 1998/99. Oil prices troughed in late 1998 and then recovered as the market tightened, with global oil inventories returning to their normal operating levels by the end of 1999.”
This is a significant positive for sentiment towards energy companies, say the Guinness fund managers. “In the 1998/99 period energy equities outperformed world equities in the subsequent periods after the oil price low. Today, the weight of energy equities with the S&P500 index is still close to multi-decade lows and valuations are bouncing off similar levels to 1998/99. If you believe, as we do, that this news helps on the path to recovery in the oil price to $70 plus a barrel, the case for energy equities at this level looks strong.”
This upward movement in the price of oil will make Chancellor of the Exchequer, Phillip Hammond’s promise to freeze the duty paid on oil a boost for UK businesses and consumers.
If you want to find out more about what’s hot in the trading world right now, take a look at our trading ideas. Or you can follow our Stock Market News for any updates on the OPEC deal.
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