OPEC’s surprise decision earlier this month to cut production by 1.2 million barrels per 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 recover.
JP Morgan analyst Christyan Malek wrote in a note on Friday that oil stocks have tended to post tepid returns at best after OPEC output cuts, even though those cuts are meant to boost oil prices. “Overall, we see energy stocks typically struggling to outperform the broader market and trading near flat at best against the backdrop of OPEC cuts aimed at managing supply in the face of deteriorating prices. economic fundamentals,” Malek wrote.