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WisdomTree reacts: ‘OPEC has not solved the supply glut’

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World Pipelines,

Responding to the sharp spike in the oil price following the meeting of the Organization of the Petroleum Exporting Countries (OPEC) on 30 November, Viktor Nossek, Director of Research at ETF provider WisdomTree, stated the following:

“The price of oil has surged today as OPEC finally acted to reduce production, implementing its first cut in eight years. However, while prices may climb further in the very near-term, we expect any gains will be short lived, with US production likely to ramp up to exploit higher prices.

“Put simply, OPEC has not solved the supply glut, and indeed this merely shows how much Saudi Arabia’s position has weakened when it comes to its role as the price maker in oil markets. With a more stable supply side situation now the norm thanks to US shale production, any further upside for the oil price from current levels is unlikely to be sustainable, but that does not mean there will not be a spike in volatility around the price.

“Indeed, we would expect to see investors speculate whether OPEC will make further cuts, especially if today’s rally is as short lived as we expect it to be. What is clear is that OPEC has not ushered in a new era of higher prices, with this meeting unlikely to lead to any major directional change for oil in the near to mid-term.”

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