FTSE heavyweights BP and Shell have rallied in early trading today following yesterday’s Opec deal.
Brent crude is currently at five-week highs at $52 a barrel as the group of oil producing nations agreed to limit supply to 1.2m barrels a day.
It is the first time the oil cartel has reached a deal since 2008.
BP was up 3.5 per cent and Shell was up 3.1 per cent this morning, while FTSE All Share company Premier Oil was up 4.2 per cent.
Head of equity strategy at stockbroker Interactive Investor Lee Wild says the deal is good news, but questions whether the reduction will be enough to keep prices much above $50.
“Past experience also tells us that getting everyone to play by the new rules is another matter.
“An agreed cut by non-OPEC member Russia is encouraging, although, in truth, it had very little to lose given current production is running at record levels.”
However, Aberdeen Asset Management investment strategist Bob Minter reckons the oil price could reach up to $60 a barrel.
Minter says the announcement of a committee to monitor production means the agreement appears to have teeth.
“They’ve agreed to cut production in stronger economies and allowed weaker ones to grow production. It will take a few months to see whether the claimed cuts have in fact been made.”
Sustainable alternatives to oil also loom over the industry in the long term, Minter says.
“Trump might try to tear up the Paris Accord but it’s the likes of India and China that matter the most and they don’t want to rely on oil. Opec is going to need to harness all of its powers of coordination and bargaining to chart this existential threat.”