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

The Sun (Malaysia) - - SUNBIZ -

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.

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