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Goldman Sachs: OPEC Freeze Could Add $10 To Oil Prices

Russia Oil

Oil barrel prices could climb between US$7 and US$10 by the end of the first half of 2017, according to Goldman Sachs analysts. Yesterday, OPEC surprised nearly everyone and reached a deal to curtail oil production. And now, if all members of OPEC strictly comply with their new quotas, which are to be (and that’s a reasonable “if”) agreed upon at the November meeting of the organization, Goldman is predicting a sizable recovery for the price of a barrel of oil.

For this scenario to take place, all other circumstances on oil markets must remain unchanged.

In its report, which was out on the day the agreement was reached, the Goldman analyst team noted that it was skeptical about the chances of success for the freeze deal. The bank pointed out that OPEC members don’t always feel obliged to stay within quotas, which will contribute to the ongoing uncertainty on oil markets.

Further killing the buzz of its price forecast in the best-case scenario, the Goldman analysts said that the support that oil prices will see from the freeze is very likely to be limited to the short term. In other words, a year from November, prices could be back to the US$40-US$50 range. This is probably why Goldman did not revise its average oil price forecast for the rest of this year and the next: the bank still expects the 2016 average to be US$43 and the figure for 2017 to be US$53.

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The investment bank is not alone in its skepticism. Citigroup also maintained its estimate for 2017 oil prices at an average of US$60 for Brent. Citi analysts told Bloomberg that the main problem with the agreement is deciding specifically how much each OPEC member will need to cut from its daily output. Although allowing for the possibility that the new quotas will be agreed at the November meeting, Citi analyst Ed Morse said that “this is still kicking the can down the road.”

The problem with the quotas has already manifested itself: Iraq is disputing the method OPEC uses to estimate each member’s output. The method includes two sets of data – from the member itself and from secondary sources. The data from secondary sources is usually notably lower than self-reported figures, and considered closer to reality. Iraq, however, wants its new quota to be based on its self-reported figures and is unlikely to remain the only OPEC member with this ambition.

By Irina Slav for Oilprice.com

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Leave a comment
  • Barrack Obama on September 30 2016 said:
    I distinctly remember Goldman Sachs lowering their price target on oil from $50 to $43 (3 days ago). Seems these overpaid bankers like to pull random numbers out of a hat.
  • SH on October 03 2016 said:
    These clowns opening their mouth again?

    Look up all the speculations these guys made the last two years and you'll have a good laugh how much credibility they carry.

    Same goes for the journalists who keep reporting them as they carry any meaning.
  • Semifreddo on October 11 2016 said:
    Goldman was calling for $10-12 oil when prices were in the $20s.
    They should just shut up about oil prices.

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