KUCHING: Analysts remain neutral on the oil and gas sector following the conclusion of the Organisation of Petroleum-Exporting Countries (Opec) whereby members committed to cut production by 1.2 million barrels to 32.5 million barrels per day – the first decrease seen in eight years.
Assuming OPEC members succeed in implementing the deal to start in January, global surplus could be immediately erased, said an analyst with Public Investment Bank Bhd (PublicInvest Research).
“But the deal also hinges on some key non-OPEC producers including Russia, to support this production cut for an additional circa 600,000 barrels per day, of which Russia alone is expected to cut 300,000 barrels per day,” it opined in a report yesterday, adding that a meeting with non-Opec producers is slated for December 9.
“We understand that Saudi Energy Minister Khalid al-Falih had long insisted that Opec would do an output-limiting deal only if non-Opec producers contributed, hence expectations are now running high of similar moves, reflected by the overnight spike in crude oil prices.
“We retain our neutral view at this juncture pending the implementation of these cuts, but we are increasingly inclined to the view of a fundamental rebound for the oil markets, albeit on a more gradual basis, with a supply crunch ahead expected as soon as end 2017.”
To note, Saudi Arabia will reduce its output by nearly 0.5 million barrels per day, accounting for almost half the agreed cuts. This will take their overall production down close to 10 million barrels per day.
Meanwhile, Iran wanted its output to climb to a pre-sanction level of at least four million barrels per day, while Saudi Arabia insisted on a freeze at 3.7 million barrels per day. Iran emerged victorious, with a boost to production agreed, and now able to fulfil their longing need to regain market share which was lost under Western sanctions.
Algeria’s energy minister offered a middle ground – roughly 3.8 million barrels per day. Conclusively Iran will be allowed to boost production by another 90,000 barrels per day to 3.8 million barrels [er day, with both Iran and Saudi Arabia offering some concessions.
Russian Energy Minister Alexander Novak who spoke an hour after Opec announced its deal in a briefing in Moscow, stated that “Russia will gradually cut output in the first half of 2017 by up to 300,000 barrels per day, on a tight schedule as technical capabilities allow,” he said. But it is noted that he did not say from which output levels Russia would cut.
“Indonesia — a small part of the discussion — will not be part of the deal but its production volume of 722,000 barrels per day will be included in Opec’s 32.5 million barrels per day target, despite its membership suspension in OPEC due to its status as a net oil importer,” the research house added. “This means its withdrawal will not affect the specifics of the agreement.
“Total combined reduction of 1.8 million barrels per day by Opec and non-Opec represents almost two per cent of global output and would help the market clear a stocks overhang, which had sent prices crashing from levels as high as US$115 a barrel seen in mid-2014.
“Non-Opec Azerbaijan and Kazakhstan have said they might also cut.”