OPEC Production Cut Agreement in Doubt

Expectations of an OPEC production cut deal are sliding – along with recent oil prices – as it becomes more apparent that instead of oil-producing nations joining the negotiating table, more of them are looking for exemptions.

Goldman Sachs analysts said in a research note that the lack of progress among the members of the Organization of Petroleum Exporting Countries (OPEC) amid growing discord suggests a deal may be less likely. A recent meeting in Vienna yielded no sign of actual progress.

The Gulf Cooperation Council (GCC) countries of Saudi Arabia, the United Arab Emirates, Qatar and Kuwait won’t accept a unilateral cut, and Iran and Iraq remain unwilling to work within a quota. Russia, Brazil and Kazakhstan appear uninterested in freezing production at current rates. And increasing production among OPEC members in October reduces the odds of an inventory cut in the first half of 2017, analysts said.

“Net, both the probability of a cut being announced and the odds of it successfully reducing inventories have declined over the past week, in our view,” Goldman Sachs analysts said.

Analysts at R.W. Baird also expressed some skepticism about OPEC’s talk of a production cut.

“We hold doubts about the group’s ability to coordinate any near-term action let alone effect long-range planning,” they said in a note to investors.   

But at Evercore ISI, analysts said the market can balance without OPEC intervention.

“We don't believe an agreement is necessary to balance the market, as fundamentals continue to improve without any OPEC coordination,” Evercore said in a note to investors.


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