OPEC Deal Solid Step in Right Direction
The OPEC deal was a solid step in the correct direction, according to Devin Geoghegan, Genscape’s global director of petroleum intelligence.
“If you add the additional declines from Iran that are likely in 2019, then the headline OPEC production cut of 1.2 million barrels per day (MMbpd) is closer to 1.5 to 1.7 MMbpd,” Geoghegan told Rigzone.
“Combined with Canadian curtailments and the recent crude price collapse, global crude oil and condensate supply-demand looks more balanced for 2019 onwards,” he added.
The Genscape representative said “the large wildcards” will be U.S. growth and “the stability of demand in the face of challenging global economic concerns”. Geoghegan also outlined that the latest OPEC meeting “made clear that you can no longer count on the old geopolitical guidelines”.
“Importantly, Russia’s influence on OPEC has continued to grow, which was visible in the delay to reaching a deal,” he added.
Giving his take on the OPEC deal, Deloitte’s Duane Dickson, vice chairman and U.S. oil, gas and chemicals leader, said “all things being equal, removing supply from the market should stem the rise in inventories and stabilize prices at or above current levels”.
“Whether there is a material price recovery will depend on the state of the global economy and whether oil demand growth continues its recent momentum,” he added.
“If it does, there is now more upside to prices; and if demand growth slows, this agreement mitigates much of the emerging downside risk to prices,” Dickson continued.
Bjorn Tonhaugen, head of oil market research at Rystad Energy, told Rigzone recently that the biggest negative risk for the price of oil after the production cut decision is a larger slowdown in the world economy.
Tonhaugen believes the cuts will help the price stabilize and partially recover during 2019 but will “not likely bring oil back up to $75-$80 levels anytime soon due to the growth in U.S. shale”.
Production cuts stemming from the latest OPEC deal are effective as of January 2019 for an initial period of six months. The contributions from OPEC and non-OPEC will correspond to 800,000 barrels per day and 400,000 barrels per day, respectively.
The next OPEC and non-OPEC ministerial meeting is scheduled to convene in Vienna, Austria, in April next year.
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