Opec deal not enough for crude comeback, says expert

‘Investors will need convincing’

North Sea investors will need more convincing Opec’s new output reduction deal is robust before loosening their purse strings, an oil and gas expert said yesterday.

Alex Kemp, professor of petroleum economics at Aberdeen University, added the agreement was unlikely to have a big effect on oil prices until more details are firmed up.

Producers’ cartel Opec ( The Organisation of Petroleum Exporting Countries) agreed to cut production to a range of 32.5million to 33million barrels a day – a drop of about 700,000 barrels – which would mean a first reduction in eight years.

Brent crude prices shot up by more than 6% to $49.81 a barrel early yesterday, the highest since September 9, before easing back to $49.75 – a more modest 2.2% increase.

Despite the gains, Prof Kemp said the Opec deal left too much to the imagination for a significant upturn in crude pricesandthe oil industry’s fortunes to take place. He added: “Although there is a definite change in thinking by leading producers within Opec, oil traders will want to be satisfied that any cut tooutput is implemented, but there are no details on that yet.

“To be convinced, they’d want to know who’s going to cut production and what are the quotas for individual producers? That could come in November.

“It has been some years since Opec had individual quotas. Without those, traders may be a little suspicious about whether the deal will hold.

“Iran still appears to be anxious to get freedom to increase production to the levels it had before sanctions

“Tradersmay be a little suspicious about whether the deal will hold”

wereimposedonit, so that leaves uncertainty about what will happen to the agreement.

“So what will be the impact on the North Sea? North Sea investors will also want to be convinced that this change in attitude is translated into quotas.”

Andrew Reid, Aberdeenbased managing director of energy consultancy Douglas-Westwood, said the deal was a “welcome shot in the arm” to the market.

Mr Reid added: “On the face of it, it’s a hugely positive signal for the sector and points to a near-term turn in the market.”

Other analysts doubt the deal will be enough to rebalance a heavily over-supplied market.

Opec said further details of the output cut would be announced a its policy meeting in November, leaving unanswered when the agreement will come into effect, what new quotas for member countries will be and for what periods, and how compliance will be verified.

International banking giant Goldman Sachs said prices could rise $7-10 per barrel by the first half of next year if the cuts were honoured, but also warned they could be “self defeating medium- term” by prompting a large drilling response around the world.

TIME WILL TELL: Professor Alex Kemp says the deal needs to be more robust