OPEC Cut of 'At Least 700,000 Bpd' Needed to Bring Market Balance
An OPEC production cut of at least 700,000 barrels per day is necessary to bring the market back into balance, according to oil and gas analysts at Jefferies.
Jefferies has outlined that the physical market has shifted back to oversupply because of surging OPEC output, with the most material increases driven by improving security conditions in Libya and Nigeria. OPEC is now managing more output heading into its general meeting on Nov. 30 than it was when action was first broached in August.
Analysts at Jefferies have warned that the return of conflict barrels, and subsequent oversupply, will likely weigh on oil prices unless OPEC achieves a cut at its next meeting.
“We have been skeptical that OPEC would be able to reach agreement on an output cut unless Saudi Arabia was willing to resume its role as swing producer,” analysts said in a brief research note sent to Rigzone.
“We do expect that OPEC will make some form of statement on production restraint…[although] the credibility and transparency around collective OPEC actions - key to any Saudi cooperation - are far more uncertain. A surge in OPEC output to as much as 34.5 million barrels per day in Nov. (vs. 33.5 million bpd in Aug.) makes a credible OPEC cut all the more difficult to achieve,” the analysts added.
The return of conflict barrels and the intra-OPEC scramble for market share has led Jefferies to increase its estimate for total global supply in 2017 by 740,000 bpd.
“We may need to immediately reverse this if OPEC meets its goal of transparent and credible action. However, we are now two weeks away from the physical market regaining control from OPEC rhetorical devices,” analysts said.
Jefferies believes the price of Brent will average $58 per barrel in 2017 and $72 per barrel in 2018.
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