A man stands at an oil terminal at Fujairah, in the United Arab Emirates.Photo: Karim Sahib / AFP
An oil terminal at Fujairah, in the United Arab Emirates. Photo: AFP / Karim Sahib

Markets were taken off guard by the surprise move from Thursday’s Organization of Petroleum Exporting Countries (OPEC) to cut production by 1.2 million barrels.

The price of Brent crude, the international benchmark for oil prices, rose 13% to above US$52 a barrel in Thursday trading, with some bullish analysts predicting the beginning of an oil price rally.

However a report by Oxford Economics on Friday calls for calm – don’t believe the hype, it concludes. The firm has not changed its view that Brent oil prices will average US$50 per barrel next year and US$52 in 2018.

“This is partly a reflection of the recent data for oil demand, which has shown very weak activity in key growth areas such as China and India in late Q3 and early Q4,” writes Dan Smith, Director of Commodity Services at Oxford Economics, in the note.

He adds that US shale producers also remain a threat to higher prices, especially with a Donald Trump presidency favoring domestic production over imports. The president-elect has said he would support “safe hydraulic fracking,” open federal land for oil and gas production, and encourage energy development in offshore areas.

“While energy independence is a long way off, the immediate impact of a Trump presidency appears to be higher supply, only partly offset by higher demand from fiscal stimulus,” Smith writes.

Goldman Sachs Group said the oil price could rally higher than US$60, but that it would likely retreat back to US$50 a barrel in the second half of next year.

“We do not believe that oil prices can sustainably remain above US$55 a barrel, with global production responding first and foremost in the U.S., but also through greater brownfield spending elsewhere,” Goldman Sachs analysts wrote in a report.

Fawad Razaqzada, a market analyst at forex.com, said a continued rally was possible, and Walter Zimmerman, chief technical analyst at ICAP, said the price could reach as much as US$59 a barrel over the next few weeks.

The International Energy Agency’s (IEA) 2016 World Energy Outlook (WEO) report recently projected a 75% increase in oil prices by 2020, with India becoming the leading source of demand for oil.