Analysts do not believe that the agreement of OPEC countries will help them to cope with low oil prices
Analysts responded to news of the agreement of OPEC countries is a reminder that the potential reduction of oil production by countries outside the cartel will support oil quotations, but is not a panacea to reduce them.
We will remind, on the eve of OPEC’s meeting in Algeria reported yet informal willingness to cut oil production by about 700 thousand barrels per day (at current level of production of 33.24 million barrels per day). This kind of agreement is achieved for the first time in eight years, but as long as it looks formal, more like a promise to cut production over time and with certain reservations.
The Goldman Sachs experts emphasize that in the long term are execution of the agreed OPEC limit for the extraction of skepticism, and warn that the growth in oil prices in the case of the implementation of the transaction will lead to the drilling of new wells around the world in the medium term.
In this case, according to Reuters, Goldman Sachs reiterated its forecast for prices of oil by the end of 2016 and first half 2017. According to investment Bank, WTI by the end of 2016, will cost $ 43 per barrel, and in 2017 – $ 53.
Basically, therefore, while an agreement to freeze production will not really achieved and it is not clear how effective it is, significant growth of oil prices, experts do not expect, says the Agency “Finmarket”.
“The implementation of the agreement in the medium term will surely lead to higher fuel prices, which may cause the acceleration of inflation in the United States, and this, in turn, ceteris paribus increases the probability of tightening in monetary policy”, – quotes Agency of economic experts “VTB Capital”.
The increase in Fed rates will, most likely, to the strengthening of the U.S. dollar, which in turn will put pressure on oil quotes.
The message that OPEC members have agreed that the oil production of the cartel members should not exceed 32,5-33,0 million barrels per day, a positive for oil prices, the survey says Sberbank Investment Research. However, analysts say the investment division of Sberbank, before oil producing countries can agree on something more specific to the scheduled November meeting, OPEC will have to solve many more questions.
In particular, the problem is that even the lower bound of the specified range (32.5 million barrels per day) corresponds to the volume of OPEC oil production in late 2015, and at that time it was a historic high.
In addition, the survey notes that the increase in oil prices above $ 50 per barrel can become active producers of shale oil in the US, which will limit the possibility of further growth of quotations.
The Dutch ING Bank analysts also believe that the excessive growth of cost of oil on expectations of limiting production to wait probably not worth it, because the uncertainty still remains.
Experts of “VTB Capital” noted that a further increase in oil prices will depend on how effective will be the implementation of the agreement on the limitation of production.
“Cartel for the first time since 2008 failed to conclude such an agreement, and although the production decline is insignificant (700 thousand barrels per day), it will definitely help to solve the problem of oversaturation of the oil market. Reduction of production for each of the participating countries will be decided in November at a formal meeting of OPEC” – write the analysts of the financial group “BCS”.
Analysts of Gazprombank writing on Thursday that the lack of agreement among OPEC countries after the last meeting would be a negative factor for the market. Therefore, even if the ability of the cartel to implement achieved in the environment of the agreements remains in question, in any case, the fact that they have started negotiations on the freezing of production, is good news in the short term reduces the risk of falling oil prices.
“In the longer term, the problem of increasing supply and questionable demand Outlook remains valid, and the last agreement between the member countries of OPEC by itself cannot solve it”, – underline analysts Sberbank Investment Research.
The Corporation “URALSIB” believe that although a detailed agreement on limiting oil production should be taken at OPEC meeting only in November, the fundamental solution of the cartel is a powerful supporting factor for the oil market.