BAKU, Azerbaijan, Nov.4
By Leman Zeynalova - Trend:
Brent crude is expected to average $62 per barrel and $58 per barrel in 2020 and 2021, respectively, down from an average of $64 per barrel this year, Trend reports with reference to Fitch Solutions Macro Research (a unit of Fitch Group).
“On the supply side, prices will face further strains in 2020. In the eight months to August, participating OPEC members and Russia removed on average 1.24 million barrels per day (b/d) from the market under the production cut deal. The deal is in place until March 2020 and will likely be rolled over, keeping those barrels off the market for the foreseeable future,” reads a report released by the company.
Deeper cuts are also rumoured to be on the table, but these may prove problematic, Fitch Solutions believes.
Compliance within the group is highly uneven and much will depend on Saudi Arabia’s tolerance for taking on more of the burden, according to the report.
“More importantly, the impact that any further cuts would have on prices is uncertain at best.
The market has grown increasingly insensitive to bullish price drivers and may easily shrug off anything short of a very major – million or multi-million b/d – cut to supply.”
Fitch Solutions expects that if the gain in price is less than the loss in production, then the group suffers a loss of revenue.
“Some members, notably Saudi Arabia, may be willing to incur this loss in return for broad market stability. Nevertheless, the prospect of significant or sustained losses may call into question the logic of the cuts. More so given that – all else equal – these cuts will serve to support stronger growth in US shale.”
---
Follow the author on Twitter: @Lyaman_Zeyn