An­a­lysts doubt OPEC deal will lift oil prices

China Daily (Hong Kong) - - BUSINESS - By ZHENG XIN zhengxin@chi­

Whether or not oil prices will rise, due to OPEC’s planned crude out­put cut, re­mains to be seen, top in­dus­try an­a­lysts said.

OPEC mem­ber coun­tries agreed last fort­night to cut their oil out­put by 1.2 mil­lion bar­rels per day. The first such deal in eight years, the agree­ment in­tends to shrink a global glut that has dragged down bench­mark prices.

But the planned pro­duc­tion cut from next month might not help re­duce crude out­put at one go or in the near fu­ture, said Daniel Yer­gin, chair­man of IHS Cam­bridge En­ergy Re­search As­so­ci­ates and a Pulitzer Prize-win­ning au­thor.

In­stead, OPEC mem­ber coun­tries will likely curb crude pro­duc­tion grad­u­ally due to fi­nan­cial pres­sures and eco­nomic stress. This makes the deal’s im­pact on oil prices dif­fi­cult to as­cer­tain now, said Yer­gin at the 2017 In­ter­na­tional Oil and Gas Ex­ec­u­tive Fo­rum in Bei­jing on Thurs­day.

Yer­gin is re­garded as one of the en­ergy sec­tor’s fore­most ex­perts. In­ci­den­tally, he re­cently joined US Pres­i­den­t­elect Don­ald Trump’s team.

The crude price has dropped to $40 from $115 per bar­rel at its re­cent peak in the sum­mer of 2014, hurt­ing the fi­nan­cials of oil gi­ants and ma­jor ex­port­ing coun­tries.

Echo­ing Yer­gin’s view, Wang Lu, an Asia-Pa­cific oil and gas in­dus­try an­a­lyst from Bloomberg In­tel­li­gence, said that if OPEC mem­ber coun­tries stick to their pro­duc­tion quo­tas and de­liver the promised cut, mar­ket sen­ti­ment will im­prove next year.

But whether they ac­tu­ally suc­ceed in cut­ting pro­duc­tion re­mains a moot point, he said.

In ad­di­tion, the US shale in­dus­try is also poised to re­bound from the brink, fol­low­ing the OPEC deal, she said.

“US shale oil pro­duc­tion is re­ac­tive to oil prices, and when oil prices re­cover to the range where it be­comes eco­nom­i­cal for pro­duc­ers to bring more ac­tiv­ity, they will add more rigs, so oil pro­duc­tion in the US may start to grow again,” said Wang.

“That’s why, US oil pro­duc­tion can serve as the sta­bi­lizer of oil prices and limit the fur­ther up­side of re­cov­ery.”

Qian Xinkun, an an­a­lyst with the CNPC Eco­nom­ics and Tech­nol­ogy Re­search In­sti­tute in Bei­jing, agreed. “The slide in costs caused by OPEC mem­ber coun­tries cut­ting sup­plies might en­cour­age more US shale out­put.

“OPEC’s de­ci­sion to cut out­put is good news for the US shale patch. Whether the global crude price will rise also de­pends on the next US move.”

Ac­cord­ing to Wang, US oil pro­duc­tion showed great re­silience and may re­turn to vol­ume growth next year.

“In ad­di­tion to the ris­ing rig count and ris­ing pro­duc­tiv­ity as mea­sured by new well pro­duc­tion per rig per day, the capex (cap­i­tal ex­pen­di­ture) may rise next year,” she said. “When capex rises, pro­duc­tion may go up de­spite a time lag.”

Ac­cord­ing to Yer­gin, OPEC was un­able to re­verse the cur­rent slump in crude prices. Its eco­nomic power has been weak­ened; the as­so­ci­a­tion has be­come ir­re­triev­ably di­vided, he told Fi­nan­cial Times in a re­cent in­ter­view. “The era of OPEC as a de­ci­sive force in the world econ­omy is over.”

oil price per bar­rel at its re­cent peak in the sum­mer of 2014

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