Doubts about OPEC deal still exist – analysts

Oil&Gas Materials 5 December 2016 12:54 (UTC +04:00)

Baku, Azerbaijan, Dec.5

By Leman Zeynalova – Trend:

OPEC agreement reached in Vienna is not such a big deal for the world economy, according to the analysts of the UK Capital Economics consulting company.

The rise in oil prices after the cartel finalized the deal, is only a little higher than it was in October, shortly after an output cut was first discussed, said the analysis obtained by Trend.

As such, the deal is only a small positive for energy producers and only a small negative for consumers, who will still benefit from much lower prices than were assumed to be the ‘new normal’ a few years ago, the analysts believe.

Capital Economics said that the rise in oil prices gives a misleading impression of the wider importance of the latest OPEC meeting.

“Note first that this meeting simply fleshed out a preliminary agreement to cut output (the ‘Algiers Accord’) made at the end of September,” said the analysis.

Moreover, Capital Economics states that the doubts about the deal have not gone away.

OPEC’s compliance record is poor and it remains to be seen whether it will be able to deliver the promised output cuts, according to the analysts.

“The deal also appears to depend on friendly non-OPEC countries cutting too. Russia in particular may not prove to be a reliable partner. In contrast, it is pretty much guaranteed that US output will continue to recover,” said the analysis.

During the Vienna meeting held Nov.30, OPEC members decided to implement a new OPEC-14 production target of 32.5 million barrels per day.

The decision was made in order to accelerate the ongoing drawdown of the stock overhang and bring the oil market rebalancing forward.

Earlier, former Saudi Arabia Oil Minister Ali al-Naimi said that OPEC’s agreement to cut production for the first time in eight years has the potential to balance the oil market, as long as everyone sticks to it.

"The only tool they have is to constrain production," al-Naimi said of OPEC at an event in Washington, D.C. "The unfortunate part is we tend to cheat."

Non-OPEC countries are expected to cut the oil output by 600,000 barrels per day. Russia has agreed to reduce the oil production by 300,000 barrels per day.

The meeting of OPEC with non-OPEC countries is expected to be held Dec.10 in Vienna.