EMEA News
Goldman Sachs Dismisses Freeze Talks as Counterproductive, but Crude Bounces on Iran Indicating it Might Support Them
Once again based on rumours about what might happen at the September freeze talks in Algeria, Brent and West Texas Intermediary both settled up on Tuesday at $49.96 and $48.10 respectively - this time because Iran suggested it may support joint action to prop up the market.
And just as quickly, someone has stepped in to reiterate that the talks won't help a market plagued by over-saturation and weak demand: in fact, Goldman Sachs in a new report went so far as to say that an output cap would be counterproductive for Organization of the Petroleum Exporting Countries (OPEC) because it would lead to price gains that in turn would prompt supply increases from other countries.
It wrote, "Thawing relationships between parties in conflict in areas of disrupted production would be more relevant to the oil rebalancing than an OPEC freeze, which would leave production at record highs."
As for the all-important fundamentals that tend to be overlooked whenever an OPEC member claims it will support a freeze, Goldman points out that "supply continues to feature the cross currents of rising low-cost supply, declining high-cost production, and new project ramp up; in fact, marginally more bearish data recently than we had assumed suggests in our view that the recent price rally should stall."
Goldman supports this outlook by noting that in the second half of this year at least 100,000 barrels per day of oil will be unleashed by Libya, Iraq, and Nigeria alone, putting further pressure on the market and prompting the bank to forecast crude remaining in the $45-to-$50 range through next summer.
It wrote, "As a result, we reiterate our view that the oil price and fundamental recovery remains fragile."
For the record, Iran's reported willingness to cooperate in Algeria comes from unnamed sources, who told media "Iran is reaching its pre-sanctions production level soon and after that it can cooperate with the others.
"In general, Iran prefers more actions from the OPEC side rather than just freezing at the maximum production level of all members; if this freezing issue helps prices to improve, Iran by positive words of support, will help."
But even in the realm of unnamed sources there is considerable skepticism about the possibility of a deal, let alone its efficacy: a senior industry source told CNBC, "Freezing output now is difficult, everyone is raising production. And even if, and I am saying 'if' ... we agreed to a freeze, no one will commit to stick to it."
It should also be noted that in June, Iran declared that "an output ceiling has no benefit to us" and called for a massive production quota instead.
