What’s Next for Oil and Why OPEC Still Matters

OPEC didn’t change their production guidance at their June 2 meeting. Yet rather than focus on what OPEC said, we believe investors should pay attention to what is actually being produced.

There have been significant production losses among key OPEC producers, such as Nigeria and Iraq. 

• Saudi Arabia has signaled that they will not increase their production capacity to replace those barrels.
• PIMCO sees $50 oil as the minimum level needed to stabilize production declines.
• Recent information gives the market distinct upside, in our view. We could see the market rebalance at an even faster rate than we would have expected two or three months ago.
• PIMCO’s economic outlook - which calls for slow, but reasonable demand growth and increasing inflation - is net positive for oil and commodities. More investment in the oil supply chain will be needed to meet future demand.
• PIMCO believes that in the future, OPEC’s relevance will come back to the fore – especially if oil markets experience a transient shock.

Why OPEC is still relevant and PIMCO’s outlook for oil is positive

Greg Sharenow explains why PIMCO believes the oil market has distinct upside in the months ahead, and why OPEC’s relevance will eventually come back to the fore.

For timely insights into the macroeconomic factors affecting markets and investors, visit the PIMCO blog.

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