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How the Weak Oil Price Threatens the Footsie's Perky Progress

By Malcolm Stacey | Monday 20 March 2017

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Hello Share Twirlers. Though the Footsie has been striding ahead, it would have done far better if the oil price had behaved itself. We are not just talking oil shares, but the whole of the share economy. A weak oil price has a negative effect all round.

Therefore, it is rather amazing that share prices are doing so well. Bear in mind, gang, that last week oil prices dropped to their worst since November. Will the price of the ebony nectar rise now? Well, it’s not looking too good. Production has been picking up in many parts of the world and stocks are building up. Too much supply, not enough demand.

Take the example of the USA. Its frackers have been pushing more oil onto the market. At the same time, that country has been importing more of it. How’s that for short-term thinking?

And can anyone expect the OPEC countries to do what they ought to do - cut production? One of the members, Saudi Arabia, has acknowledged that it actually raised output last month.

OPEC boosted the oil price towards the end of last year by agreeing to cut production, but the jolly benefits of that announcement have almost worn off now. So now everyone looks forward to its next big meeting, though it’s not scheduled until the end of May.

Meanwhile, the word on the street is that some hedge funds who’ve invested big in oil stocks are beginning to withdraw now.

My own feeling, for what it’s worth, is that the oil price has probably bottomed and that I’ve missed the boat on selling my stock. I do think that the big producers will avoid panic and, sooner or later, will cut production to raise the price.

Meanwhile the share price of producers like Shell (RDSA) and BP (BP.) are likely to be on a knife edge.

And now it's time for the Punter’s Return.

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