OPEC’s surprise decision earlier this month to decrease production by 1.2 million barrels a day was seen as a bullish sign for the oil market. But one analyst says it’s a “red flag” for oil stocks, because OPEC is reacting to weak demand that may take a while to rebound.
JP Morgan analyst Christyan Malek wrote in a note on Friday that oil stocks have tended to post tepid returns at best after OPEC production cuts—even though those cuts are meant to boost oil prices. “On balance, we note that energy equities generally struggle to outperform the broader market and at best trades broadly flat in the context of OPEC cuts aimed at managing supply in the face of deteriorating economic fundamentals,” Malek wrote.
