The OPEC alliance agreed to its biggest production cut since the start of the epidemic in Vienna on Wednesday, a move that drew a swift rebuke from the US and caused Goldman Sachs Group Inc. to increase its price forecast for global benchmark Brent crude this quarter.
Here s what analysts have to say about the oil market after the group pledged to slash daily output by 2 million barrels from November:
Damien Courvalin, head of energy research, said that all of the developments on the supply side set the stage for what we believe will be higher prices into the end of the year. The bank increased its fourth quarter estimate for Brent by $10 to $110 a barrel.
In a note, Giovanni Staunovo said that the oil market is expected to tighten further and Brent will advance above $100 in the coming quarters. The OPEC cut will combine with the European ban on Russian crude imports, the likely end of OECD releases of strategic oil reserves and higher demand from gas-to-oil switching this winter to squeeze the market.
Warren Patterson, Singapore-based head of commodities strategy at ING Groep NV, said in an interview that the move is enough to change the balance for the next year, causing the market to be in a deficit for the whole of 2023. He said there was a lot of upside to the bank's forecast of $97 a barrel for next year. However, further releases from US strategic reserves are seen as possible, although they would probably have only limited impact.
Analysts including Francesco Martoccia and Ed Morse said that the reduction will be large on paper, but the effective cut will be much smaller because the group is already failing to reach their quotas. They said that the move could backfire on OPEC if it hurts economic activity and oil demand.
The actual cut will likely be 1 million barrels a day, with Saudi Arabia accounting for more than half, according to analysts, including Helima Croft. The White House signaled there could be further releases from the Strategic Petroleum Reserve, but they said there was unlikely that there would be another blockbuster release in the near term.
The oil complex is weighing the complexities of the actual cut while adjusting the misalignments between production and quota, Managing Partner Stephen Innes said in a note. He said that the price of crude could go above $100 in the next few quarters.
The company's managing principal, Sarah Emerson, said in a note that this agreement is moderately bullish for prices because the market is indeed in surplus today. If the decision on OPEC production in December is made next month, it will determine whether it becomes a more bullish development for the winter. None of Facebook is the only game in town for digital political ads.