Opec oil cut deal could add $10 a barrel, says Goldman

Goldman Sachs said Opec’s deal to cut output could add as much as US$10 a barrel to oil prices.

The plan to reduce production to a range of 32.5 million to 33 million barrels a day “will likely provide support to prices, at least in the short term”, Goldman said but it maintained its crude forecasts for 2016 and next year.

“Strictly implemented in the first half of 2017 and all else constant, the production quotas announced today should be worth $7 a barrel to $10 a barrel to the oil price,” said the Goldman analysts including Damien Courvalin and Jeffrey Currie. “It has historically taken a fall in oil demand to ensure quota compliance, as in that case, production is forced lower by a decline in refinery intake around the world. This is not the case today with resilient demand growth.”

Opec produces more than 40 per cent of the world’s oil, so coordinated production cuts can have an immediate impact on global supply and demand balances.

Citibank and Goldman both maintained their price forecasts. Citigroup sees oil trading between $40 and $50 a barrel through the end of the year, with Brent crude rising to a $60 average in 2017. Goldman sees oil ending 2016 at $43 a barrel and rising to $53 next year.

While a cut in supply to 32.5 million barrels a day does not solve the oversupply immediately, it could potentially pull forward the global oil market rebalancing to as soon as early 2017, according to Morgan Stanley. At 33 million barrels a day, the rebalancing is likely in the second half of 2017, although “non-Opec supply response could put that timing at risk”, the bank said in its report.


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