Portfolio Manager Breaks Down Oil's Surge, Expects Stable Prices Over The Next Few Years

The price of oil soared to its highest level since the middle of 2015 after OPEC and non-OPEC members struck an agreement to collaborate on reducing their oil output to boost prices higher.

Rob Thummel, a portfolio manager and managing director at Tortoise Capital Advisors commented on the commodity's gains and what to expect moving forward.

The Production Cut

Thummel noted that the agreement to cut global production by an aggregate amount of 1.8 million barrels per day represents almost 2 percent of the world's total global supply. The portfolio manager suggested that the agreement occurred at a time when both OPEC and non-OPEC members have "run out of patience" for low oil prices and action needs to be taken now to support the commodity and stabilizes its price moving forward.

"Consequently, we expect stable oil prices throughout 2017 and beyond," Thummel added. "Oil prices likely remain range bound between $50–$60 per barrel over the next few years. This is a real sweet spot for oil prices as global oil demand for oil related products will continue to grow while low cost oil producers earn adequate returns on capital."

Manager's Perspective

Thummel continued that the agreement "appears legitimate," as it also calls for a monitoring committee to ensure compliance. However, he suggested that OPEC's words are "not always congruent with their actions so skeptics will continue to question any deal until OPEC and non-OPEC producers prove that production is declining."

Meanwhile, oil prices gained on Monday mostly due to technical reasons and short covering. From a fundamental perspective, global oil inventories remain well above historical averages. However, this will change once the supply cut comes into effect as global demand will exceed global supply.