According to a well-known adage, "Today's pain will bring tomorrow's gain." The Organization of the Petroleum Exporting Countries (OPEC) - the international cartel of oil producers - seeming has blind faith in this belief. We say this because yesterday's OPEC meet came up with the consensus that today's low oil price will lead to a jump in the price of the commodity in the long run.
Although crude is walking on the bullish path, it is still way below the mid-2014 level. In fact, one analyst predicts that crude might touch $40 per barrel in the short term before improving in the long run.
At the OPEC meeting last December, the group had decided to raise the ceiling of daily production from the prior level of 30 million barrels to 31.5 million barrels.
But after the latest meeting at the Austrian capital of Vienna, OPEC decided not to return to the output cap. In other word, the cartel has decided against freezing the level of production.
The statement reveals that OPEC wants the market itself to balance the crude prices. In fact, the group stated that oil price has recovered more than 80% since the last meeting in December and that a declining crude inventory points to the fact that the market is rebalancing on its own. Improving global crude demand is also helping the price of the commodity to improve.
Following the improvement, upstream energy players - whose business is positively correlated with oil - also witnessed a rise on the market. Among the energy majors that improved with the crude recovery after massive fall include Halliburton Co. HAL , Schlumberger Ltd. SLB , Chevron Corp. CVX , PetroChina Co. Ltd. PTR and Marathon Oil Corp. MRO .
What Lies Ahead
It is to be noted that there is a possibility of a short-term downside in oil price following the return of Canadian oil after a massive wildfire along with chances of the Nigerian conflict getting solved. Moreover, OPEC players like Iraq and Iran will go on producing more oil as the cartel has recently decided against production freeze.
Most importantly, Nico Pantelis - head of the research team of Secular Investor - has said that oil could fall to the $40-per-barrel level.
But eventually, the market should lead crude on its northward journey as it happened this year when West Texas Intermediate (WTI) crude improved to $49.17 per barrel from the 12-year low mark of $26.05 per barrel in mid-February.
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