Goldman cautious over surprise accord
> Bank says deal should buoy oil prices by US$7-US$10 a barrel in first half of next year
GOLDMAN Sachs said the deal reached by Organisation of the Petroleum Exporting Countries (Opec) crude producers on Wednesday to curb output should add US$7 to US$10 (RM28.84 to RM41.20) to oil prices in the first half of next year.
Members of the Opec agreed on Wednesday to modest oil output cuts in the first such deal since 2008, with group leader Saudi Arabia softening its stance on arch-rival Iran amid mounting pressure from low oil prices.
“Strict implementation of today’s deal in 2017 would represent 480,000 to 980,000 barrels per day less output,” Goldman analysts said in a note on Wednesday.
“Longer term, we remain sceptical on the implementation of the proposed quotas, if ratified,” the analysts said.
Still, the bank reiterated its year-end and 2017 oil price forecasts, given the uncertainty of the Opec proposal.
Goldman kept its end-2016 forecast for US West Texas Intermediate crude (WTI) at US$43 per barrel and its 2017 forecast at US$53 per barrel. WTI was trading around US$47 a barrel, after gaining more than 5% on Wednesday on Opec’s planned output cut.
“If this proposed cut is strictly enforced and supports prices, we would expect it to prove self-defeating medium-term with a large drilling response around the world,” the Goldman analysts said.
Societe Generale analyst Michael Wittner termed the deal a “big surprise”, and said the agreement would be added to the bullish side of the ledger.
“Ongoing uncertainty about the deal, and associated developments and news flow, will contribute to continued high volatility in the next two months,” Wittner said.
“We believe that oil market participants will now be much more reluctant to establish a significant short position for crude oil.”
Oil futures retreated yesterday as the market grew more sceptical on how Opec would implement its plan to curb the group’s oil output. – Reuters
The Opec logo is pictured here at the venue of the informal meeting between Opec members in Algiers, Algeria, on Wednesday.