The swinging pendulum of opinion that characterizes the daily analysis of where the oil market is going, in relation to the loose deal to reduce production, seems this week to be stuck in one direction: with the overall consensus being that if the deal goes south, so too will prices.
Although she believes the Organization of the Petroleum Exporting Countries (OPEC) members will ratify the deal at the last minute later this month, Helima Croft, global head of commodity strategy at RBC Capital Markets, predicts that if they don’t, oil could dip below $40.
Croft, who increasingly seems to buck conventional analytical wisdom by taking OPEC promises to reduce output at face value despite its long record of going against its own word, is confident that Saudi Arabia will play a huge role in the deal’s success: she told CNBC that it’s in the country’s “best interest to have oil above $50” per barrel for its planned initial public offering of a part of state oil giant Saudi Aramco.
The lack of progress on implementing production quotas and the growing discord between OPEC producers suggests a declining probability of reaching a deal
Damien Courvalin, Goldman Sachs Group Inc.
Damien Courvalin, analyst for Goldman Sachs Group Inc., also agrees that prices will drop if a deal isn’t reached: he thinks failure will translate into prices in the low $40s.
However, unlike Croft, he has little faith in OPEC members: “The lack of progress on implementing production quotas and the growing discord between OPEC producers suggests a declining probability of reaching a deal on November 30,” he and other Goldman analysts wrote in an October 31 note.
Jeremy Stretch, head of FX strategy for CIBC, told Bloomberg television that even if OPEC members come to an agreement, it will “be very difficult to see oil prices moving substantially higher,” due to the potential for more supply to come back into the marketplace; his predictions fall into the $45–$50 range with temporary spikes possible.
Without a deal, he thinks oil will drop to the $42–$43 range.
As far as Mohammed Barkindo, secretary general for OPEC, is concerned, all of the cartel’s 14members as well as Russia are committed to finalizing the agreement; in a Bloomberg television interview he also reported that even Iraq, which has asked to be exempt from the deal, is willing to “play its part” – although he did not elaborate on how the two differing positions could possibly be achieved.
More objectively, many signs point to trouble when OPEC members convene later this month in Vienna, with Indonesia, Iraq, Iran, Nigeria, and Libya having either directly or indirectly shown no interest in following the cartel’s objective of limiting production to a range of 32.5 million to 33.0 million barrels per day (bpd), compared with record output of 33.6 million bpd in September.