DEBATE: Brent crude is up – is it a blip, or the start of a rally?

Oil Prices Fall To Lowest Level In Four Months
Source: Getty

Brent crude is up – is it a blip, or the start of a rally?

BLIP – Dr Savvas P Savouri, chief economist and partner at Toscafund Asset Management

I do not consider the recent rally in the price of Brent crude as sustainable. For while it is a reaction to concerns over supply in the wake of events in Kurdish Iraq – and part sterling weakness – it is fated to fall anew.

The simple truth is that, as a source of energy, oil is facing a secular decline in demand.

The pace of this decline can only accelerate as renewables and others alternatives take on an ever greater role across developed economies – and emerging ones too.

For not only are power stations moving away from oil, but so too are we all – as drivers and passengers, as each new electric or hybrid car, bus and truck rolls off the production line.

As an aside, those looking to invest in it if and when Saudi Aramco lists on the London Stock Exchange might like to consider why it is being floated in the first place.

Oil extraction is a “lemon” industry, which will leave investors with a sour taste.

RALLY – Dennis de Jong, managing director at UFX.com

Oil prices have tended to hit a ceiling shortly after crossing the $50 threshold, and it has been more than two years since we last saw the $60 barrel.

But there are reasons to believe we may see a sustained rally in the coming months.

After some teething troubles, Opec’s production cut pledge is now being adhered to with the highest level of conformity since it was introduced at the meeting in Vienna at the start of this year.

There appears to be a growing consensus within the cartel to at least maintain current cuts, and possibly even extend them into the second half of 2018.

Saudi Arabia in particular is making no secret of its desire for higher prices, with a budget deficit to plug and the much-vaunted Aramco IPO on the horizon next year.

Make no mistake: it is political will that is driving oil prices upwards, and as long as that will remains, it would not be a surprise to see this rally maintained.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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