Mubasher: OPEC’s decision to announce, but not to implement, a cut in production immediately sent Brent oil prices up 6% by the end of September, according to Jadwa Investment’s quarterly oil market update.
Prices were further supported by statements from Russia expressing its readiness to cooperate in order to limit oil output.
OPEC also plans on meeting next November in Viena, when the extent of OPEC cuts and individual country quotas are to be decided.
Whilst the deal to cut remains fragile and fraught with numerous obstacles, as a result of the financial difficulty faced by a number of OPEC member economies, most notably Venezuela, Nigeria and Libya, there will be immense pressure to ensure some sort of deal is reached in November, the report indicated.
Jadwa Investment sees the most likely outcome being an agreement to cut production, but only by a small amount, more akin to a production ’freeze’ rather than an outright cut.
Such an agreement would underline OPEC’s intention to limit further rises in production and help stabilize oil prices at current levels, which is around $50 per barrel, the report stated.
At this price level, OPEC members facing more acute financial pressure would be provided some relief, but, at the same time, prices would not be high enough to encourage too strong a supply response from US shale oil, it added.
Any agreement by OPEC will need to be acted upon with discipline by all members for it to be effective, and this is where the real risk lies, any large increases in output could see the market losing faith in OPEC’s ability to curb output, and would ultimately result in oil prices declining, the report concluded.
