OPEC will probably agree to cut production to the tune of between 1 and 1.5 million bpd, analyst Johannes Benigni from Austrian JBC Energy Group told CNBC, adding there was clearly a glut on global oil markets at the moment and such a cut would likely help the market to return to balance.
“OPEC will probably manage to stabilize the oil market by choosing the right language,” Benigni said. “They will indicate a cut of between 1 million and 1.5 million, and that will do, the market probably will stabilize.”
It’s somewhat surprising how fast the market swung into excess after in June, OPEC and Russia agreed to stop cutting production and to begin to ramp up as prices climbed to uncomfortably high levels for some major importers. This month all three biggest producers globally hit new records, with Saudi Arabia’s daily production rate exceeding 11 million bpd for the first time ever. Related: $50 Oil Puts Shale To The Test
The latest production data from the Kingdom, Russia, and the United States has pressured prices in addition to gloomy demand outlooks, and the talk about production cuts started by Saudi Arabia has not been able to apply sufficient counter pressure.
Yet if these talks end with a decision to start cutting, price movement could be reversed. What’s more, the glut is not across all grades, according to JBC Energy Group’s chairman said.
“What really are in oversupply are the light crude barrels which are coming out of the U.S.,” he said. “So the expectation or the hope for OPEC right now would be that prices go lower, and demand may come back.”
But others are skeptical that this will be so easy to do. In a note to clients, Jefferies said today “The oil price correction has become a rout of historic proportions,” as quoted by Reuters. “The negative price reaction is as severe as the 2008 financial crisis and the aftermath of the November 2015 OPEC meeting, when the group decided not to act in the face of a very over-supplied market,” the investment bank said.
By Irina Slav for Oilprice.com
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