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.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Published

on

Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

Continue Reading

Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Published

on

Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

Continue Reading

Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Published

on

oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

Continue Reading

Trending