Oil: Further upside risks to prices in the next few months - Nomura

Analysts at Nomura note that OPEC extended its cuts by nine months as they had expected but suggest that oil prices are facing upside risks in the medium term.

Key Quotes

“Oil prices and commodity currencies retraced slightly on the announcement as there had been some expectations for deeper/longer cuts. However, looking ahead we see further upside risks to oil prices in the next few months. Net-long oil positioning has been reduced in recent weeks, meaning there is scope for the market to re-engage in long positions once OPEC affirms the extension of output cuts.”

“The demand backdrop remains positive, with healthy global growth momentum. While higher oil prices will eventually see US production increase again, there tends to be a lagged relationship as it takes time for supply to adjust (11 weeks or so based on simple correlations of rig count to oil prices). This gives some indication of how long oil prices can be maintained at higher levels before concerns about US supply resurface. We think oil prices can test the top of recent ranges and maintain our long NOK and long CAD bias.”