JEDDAH: Analysts believe global oil markets are entering a period of greater volatility after OPEC’s decision on Wednesday to cut output.
OPEC produces a third of global oil, or around 33.6 million bpd, and the deal aims to reduce output by 1.2 million bpd from January 2017, similar to January 2016 levels.
“We think this is a meaningful deal which will do much to clear the large overhang of stocks at a time when the market is already slowly rebalancing,” Andrew Gilmour, senior economist at Samba Financial Group, told Arab News.
Brian Coulton, chief economist at Fitch Ratings, commented: “The deal should help accelerate market re-balancing and it increases the chances of more rapid oil price recovery than previously expected.”
He told Arab News: “The deal has not changed our view on long-term oil prices, which we believe are more driven by the marginal cost of supply.”
The head of the International Energy Agency, Fatih Birol, warned of greater volatility after the OPEC deal.
Goldman Sachs said that the cuts could leave the field open for other producers, especially US shale drillers.
“We do not believe that oil prices can sustainably remain above $55 per barrel, with global production responding first and foremost in the US,” Goldman Sachs said.
Saudi Arabia’s petrochemicals sector, its profit margins most sensitive to oil, jumped 3.5 percent Thursday. Tadawul All-Share Index gained 1.3 percent to 7,094 points, its highest close this year.
James Reeve, deputy chief economist and assistant general manager at Samba Financial Group, told Arab News: “For the Tadawul, as I’ve said previously, the boost to the Tadawul is likely to prove short term. The price rise is in line with our forecast and does not indicate that the government will necessarily increase spending anytime soon.” He added: “We are forecasting a recession next year with obvious negative implications for corporate results and hence the Tadawul.”
Reeve said: “There might be some uplift in the market toward the backend of the year as the government loosens the purse strings a little.”
Gilmour of Samba Financial Group further commented: “The deal supports our existing average oil price projections for $57 per barrel next year and $62-$65 per barrel in 2018.”
Gilmour added: “The market outlook rests heavily on compliance with agreed production targets, and there are downside risks from faster recoveries in Libyan or Nigerian oil production, which is exempt from the current agreement. Resurgent US shale oil will also dampen the price recovery.”
In his comments to Arab News, Coulton of Fitch Ratings also said: “Significant risk remains that OPEC members will produce crude above quotas, as has happened in the past. This could slow market re-balancing. Another unknown is how quickly the US short-cycle crude production will react to higher oil prices.”
Coulton said: “US shale production has already begun to bounce back from recent lows, and may accelerate at prices above $50.”
He added: “In addition, the deal is for six months, and there is no guarantee OPEC members will reach a consensus to extend it.”
John Sfakianakis, director of economic research at the Riyadh-based Gulf Research Center, said: “If the OPEC agreement holds, this will be a boon for Saudi Arabia in terms of revenues and, above all, market confidence.”
Jason Tuvey, Middle East economist at Capital Economics Ltd., said: “The impact on Saudi Arabia’s economy is ambiguous and will depend on how long the deal lasts for and what happens next to oil prices.”
OPEC produces a third of global oil, or around 33.6 million bpd, and the deal aims to reduce output by 1.2 million bpd from January 2017, similar to January 2016 levels.
“We think this is a meaningful deal which will do much to clear the large overhang of stocks at a time when the market is already slowly rebalancing,” Andrew Gilmour, senior economist at Samba Financial Group, told Arab News.
Brian Coulton, chief economist at Fitch Ratings, commented: “The deal should help accelerate market re-balancing and it increases the chances of more rapid oil price recovery than previously expected.”
He told Arab News: “The deal has not changed our view on long-term oil prices, which we believe are more driven by the marginal cost of supply.”
The head of the International Energy Agency, Fatih Birol, warned of greater volatility after the OPEC deal.
Goldman Sachs said that the cuts could leave the field open for other producers, especially US shale drillers.
“We do not believe that oil prices can sustainably remain above $55 per barrel, with global production responding first and foremost in the US,” Goldman Sachs said.
Saudi Arabia’s petrochemicals sector, its profit margins most sensitive to oil, jumped 3.5 percent Thursday. Tadawul All-Share Index gained 1.3 percent to 7,094 points, its highest close this year.
James Reeve, deputy chief economist and assistant general manager at Samba Financial Group, told Arab News: “For the Tadawul, as I’ve said previously, the boost to the Tadawul is likely to prove short term. The price rise is in line with our forecast and does not indicate that the government will necessarily increase spending anytime soon.” He added: “We are forecasting a recession next year with obvious negative implications for corporate results and hence the Tadawul.”
Reeve said: “There might be some uplift in the market toward the backend of the year as the government loosens the purse strings a little.”
Gilmour of Samba Financial Group further commented: “The deal supports our existing average oil price projections for $57 per barrel next year and $62-$65 per barrel in 2018.”
Gilmour added: “The market outlook rests heavily on compliance with agreed production targets, and there are downside risks from faster recoveries in Libyan or Nigerian oil production, which is exempt from the current agreement. Resurgent US shale oil will also dampen the price recovery.”
In his comments to Arab News, Coulton of Fitch Ratings also said: “Significant risk remains that OPEC members will produce crude above quotas, as has happened in the past. This could slow market re-balancing. Another unknown is how quickly the US short-cycle crude production will react to higher oil prices.”
Coulton said: “US shale production has already begun to bounce back from recent lows, and may accelerate at prices above $50.”
He added: “In addition, the deal is for six months, and there is no guarantee OPEC members will reach a consensus to extend it.”
John Sfakianakis, director of economic research at the Riyadh-based Gulf Research Center, said: “If the OPEC agreement holds, this will be a boon for Saudi Arabia in terms of revenues and, above all, market confidence.”
Jason Tuvey, Middle East economist at Capital Economics Ltd., said: “The impact on Saudi Arabia’s economy is ambiguous and will depend on how long the deal lasts for and what happens next to oil prices.”
