Connect with us

Markets

Goldman Sees Greater Chances of Oil Accord But Success in Doubt

Published

on

Goldman
  • Goldman Sees Greater Chances of Oil Accord

There may be a higher probability of an agreement to cut oil production but the deal may prove self-defeating if resulting rise in prices boosts supply from other producers, according to Goldman Sachs Group Inc.

“Recent comments by Saudi Arabia and Russia point to a greater probability of a production cut,” analysts including Damien Courvalin and Jeffrey Currie said in a note dated Oct. 10. Still higher output from Libya, Nigeria and Iraq are lowering the odds of rebalancing next year. Even if a deal is achieved and successfully implemented, an initial recovery in prices and fundamentals would progressively be undone as non-OPEC output reacts to higher prices, they said.

Oil surged to the highest level since July 2015 in New York Monday as the world’s two largest producers Saudi Arabia and Russia said they’re ready to work together on limiting production. Russian President Vladimir Putin said the nation is willing to participate in OPEC’s efforts to stabilize the market while Saudi Arabia’s Energy and Industry Minister Khalid Al-Falih said he was “optimistic” that there will be a deal that may lift prices as high as $60 by year-end.

“We find that an agreement to cut production, while increasingly likely, remains premature given the high supply uncertainty in 2017 and would prove self-defeating if it were to target sustainably higher oil prices,” Goldman analysts said.

Offsetting Recovery

The bank said oil prices may rise higher than its estimate of $45 a barrel in the first three months of 2017 following an OPEC output cut, while it will be pushed lower later that year than the bank’s forecast of $60 in the fourth quarter as non-OPEC production reacts to higher prices. Goldman maintained its 2017 WTI estimate at $52.50.

“The momentum on this supply response would likely require a renewed cut in OPEC production in 2018, at which point the volume loss would more than offset the price recovery,” the analysts said.

Oil prices have risen about 15 percent since the Organization of Petroleum Exporting Countries agreed in principle last month to limit output to a range of 32.5 million to 33 million barrels a day. The group will meet in November to work on the details of how to share the burden of cuts and ministers from some members, including Saudi Arabia and Algeria, will meet with non-OPEC nations including Russia and Azerbaijan in Istanbul on Wednesday to discuss wider cooperation.

While Putin’s comments at the World Energy Congress in Istanbul are the firmest indication yet that such an agreement is possible, Russia is still pumping at record levels and has stopped short of a commitment to pull back. OPEC members also have many hurdles to overcome before implementing their first cuts in eight years.

Odds of Success

The odds of a successful implementation also remains low as Libya and Nigeria, who are exempt from last month’s OPEC deal, are pumping 500,000 barrels a day more than expected while there’s likely poor compliance from non-core OPEC producers, according to Goldman. Price-insensitive upside risks to global production may also come from the “wall of supply” coming online outside of OPEC next year with 40 percent more new projects than 2016, it said.

“Any of these three forces is sufficiently large in our view in 2017 to make the required cut in Saudi production too large to improve the current funding stress, making the shift in policy premature in our view,” the analysts said.

Failure to reach a deal would push prices to $43, warned the bank which estimates the market to be in surplus in the fourth quarter this year.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Continue Reading
Comments

Energy

Unlocking Investments into Africa’s Renewable Energy Market

Published

on

green energy - Investors King

The African Energy Guarantee Facility (AEGF) is launching a virtual roadshow of free webinars allowing a deeper understanding of risk issues for renewable energy projects on the continent, and conversations around risk mitigation solutions. The first webinar will take place on Thursday, 23 September from 14:30-16:00 hrs. EAT. 

The session will be oriented on how to get more energy projects from the drawing board to the grid. While the energy demand in African economies is expected to nearly double by 2040, and although the potential for renewable energy is 1,000 times larger than the demand, only 2GW out of almost 180GW of this new renewable power were added on the African continent.

Clearly not good enough! To improve the situation within the next two decades, new solutions need to be implemented urgently. De-risking and promoting private sector investments will play a crucial part of it.

In this 90-min interactive session, AEGF partners: the European Investment Bank (EIB), KfW Development Bank, Munich Re and the African Trade Insurance Agency (ATI) will share their experience and provide valuable insights on how they were able to come together and design practical solutions for investors and financiers of green energy projects in Africa aligned with SDG7 objectives.

Across Africa, the complexity of renewable energy projects and their long tenors hold back crucial energy investment. Tailored to the specific needs and risk profiles of sustain­able energy projects, AEGF will tackle the investment challenge by providing underwriting expertise and capacity tailored to market needs.

The AEGF will significantly boost private investment in sustainable energy projects, both expanding access to clean energy and contribute to achieving UN Sustainable Development Goals. The scheme supports new private sector investment in eligible renewable energy, energy efficiency and energy access projects in sub-Saharan Africa.

Continue Reading

Energy

Shell Signs Agreement To Sell Permian Interest For $9.5B to ConocoPhillips

Published

on

Shell profit drops 44 percent

Shell Enterprises LLC, a subsidiary of Royal Dutch Shell plc, has reached an agreement for the sale of its Permian business to ConocoPhillips, a leading shales developer in the basin, for $9.5 billion in cash. The transaction will transfer all of Shell’s interest in the Permian to ConocoPhillips, subject to regulatory approvals.

“After reviewing multiple strategies and portfolio options for our Permian assets, this transaction with ConocoPhillips emerged as a very compelling value proposition,” said Wael Sawan, Upstream Director. “This decision once again reflects our focus on value over volumes as well as disciplined stewardship of capital. This transaction, made possible by the Permian team’s outstanding operational performance, provides excellent value to our shareholders through accelerating cash delivery and additional distributions.”

Shell’s Upstream business plays a critical role in the Powering Progress strategy through a more focused, competitive and resilient portfolio that provides the energy the world needs today whilst funding shareholder distributions as well as the energy transition.

The cash proceeds from this transaction will be used to fund $7 billion in additional shareholder distributions after closing, with the remainder used for further strengthening of the balance sheet. These distributions will be in addition to our shareholder distributions in the range of 20-30 percent of cash flow from operations. The effective date of the transaction is July 1, 2021 with closing expected in Q4 2021.

Shell has been providing energy to U.S. customers for more than 100 years and plans to remain an energy leader in the country for decades to come.

Continue Reading

Crude Oil

Oil Gains 1 Percent on Possible Tight Supply 

Published

on

Oil prices - Investors King

Oil prices rose on Tuesday as analysts pointed to signs of U.S. supply tightness, ending days of losses as global markets remain haunted by the potential impact on China’s economy of a crisis at heavily indebted property group China Evergrande.

Brent crude gained 95 cents or 1.3% to $74.87 a barrel by 0645 GMT, having fallen by almost 2% on Monday. The contract for West Texas Intermediate (WTI) , which expires later on Tuesday, was up 91 cents or 1.3% at $71.20 after dropping 2.3% in the previous session.

Global utilities are switching to fuel oil due to rising gas and coal prices, and lingering outages from the Gulf of Mexico after Hurricane Ada that imply less supply is available, ANZ analysts said.

“While slowing Chinese economic growth and uncertainty around the (U.S.) Fed’s tapering timetable weighed on market sentiment, other developments still point to higher oil prices,” ANZ Research said in a note.

Still, investors across financial assets have been rocked by the fallout from heavily indebted Evergrande (3333.HK) and the threat of a wider market shakeout in the longer term.

“Evergrande’s woes are threatening the outlook for the world’s second-largest economy and making some investors question China’s growth outlook and whether it is safe to invest there,” said Edward Moya, senior market analyst at OANDA.

While that view of the state of China’s economy is weighing on markets, the U.S. Federal Reserve is also expected to start tightening monetary policy – likely to make investors warier of riskier assets such as oil.

Continue Reading




Advertisement
Advertisement
Advertisement

Trending