Here is the latest fortnightly Business View column by James Penn of Thomas Miller Investment in the Isle of Man.

OPEC met recently and did everything that the market wanted it to do, extending the 1.8m barrel cut in production for a further nine months.

This will extend the cut to the first quarter of 2018, and is supportive of oil prices. But what happened? The oil priceâ?¦ went down.

Brent oil had rallied to $54 a barrel ahead of the meeting, from lows of $47 a week or so before, but fell below $52 in the wake of the new agreement.

This is not what OPEC will have wanted, and members of the cartel will no doubt be disappointed that perhaps their most successful efforts ever to manage the oil price (most previous attempts have been foiled by one or more of the member countries breaking self-imposed limits on the sly) have been received so sceptically.

The oil market was disappointed that the cuts to daily production were not bigger, or were not extended further into the future.

So what happens from here? We are now into the US driving season, and the expectation is that there will be a big drawdown in inventories over the summer, helping to rectify the problem of oversupply which has been such a feature of the past three years.

Supply and demand would be better balanced, and the market back in equilibrium, leading to a huge collective sigh of relief in many Arab countries. Or that is the hope, at least.

Inventories started taking off in the fall of 2014, causing the biggest price crash since the mid-80s, with oil dropping to $26 a barrel at one point. Although inventories haven’t risen significantly higher since the Spring of 2016, there hasn’t been much of a drawdown either.

The intention of OPEC is that the extension of cuts will get the inventory level back to the five year average by early 2018.

Assuming that economies remain buoyant and consumer confidence continues to be high, there is every possibility that this comes to pass. The target will also be assisted by the fact that the five year average has been creeping up as recent high inventory levels comprise a larger part of the average.

US inventory levels would need to drop from 510,000 barrels to levels of 380,000, while global stocks will need to fall by 300m.

There has been some evidence that the picture is improving, with the Energy Information Authority announcing a drop in US inventories in recent weeks.

If all else fails, then come early 2018 OPEC will just have to convene again, and announce a further extension to the production cuts.

But the headwinds are large. Electric cars constitute about one per cent of the overall car market at present, but the number is expected to grow rapidly in future years as battery technology improves. By 2020 there are expected to be 120 different electric car models on the market. If this trend continues like other disruptive technologies seen in recent years (for example, internet shopping), then there could be problems ahead.

The Financial Times, on the day of the Vienna announcement, highlighted some of the potential difficulties caused by a secular fall in oil usage in future years, which could have global geo-political ramifications.

The Saudi Arabian government ran a deficit of $75bn last year, and has been borrowing to cover it. Approximately 70 per cent of the workforce in the Kingdom is employed by the state, with a relatively small private sector.

The Saudi government recently tried cutting back on some of the lavish benefits offered to state employees, but reversed the cuts a matter of months later after facing opposition.

Militants would dearly love to depose the Saudi royal family and will be working to foment distrust and destabilise it.

Thus far OPEC has held together, with the cuts borne by those with the ’broadest shoulders’ (ie Saudi), while failed states like Libya are allowed to continue pumping. The spirit of collective responsibility has worked admirably.

But in a world where demand for oil is systematically lower, and where US shale production services a greater proportion of it than in the past, then it is certainly conceivable that this unanimity of purpose could unravel.

The opinions stated are those of the author and should not be taken as investment advice. Any recommendations may not sbe suitable for all, so please contact your financial adviser for further guidance. The value of investments can go down as well as up.

Americans love their cars and driving