OPEC Members, Analysis Expect Oil Production Cuts

Tuesday November 27, 2018

Analysts on Tuesday shored up the sentiments they have been mulling over publicly for the past few weeks by stating they believe the Organization of the Petroleum Exporting Countries (OPEC) will cut its crude output substantially when it meets in Vienna next week, to ward off the prospect of a global oversupply in 2019.

Speaking to CNBC, Johannes Benigni, founder of JBC Energy, said there had been "more than enough" compensation for the oil lost by Iran exports under the U.S. sanctions - regardless of the waivers to trading countries issued by U.S. president Donald Trump - and now the market is "clearly oversupplied" with regard to light crude oil barrels from the U.S.

Benigni added that "OPEC will probably manage to stabilize the oil market by choosing the right language......the question would be, is Russia ready to cut at $60?"

Jeff Currie, head of global commodity research for Goldman Sachs, told Bloomberg television that the oil market is oversupplied and production needs to be cut by 1 to 1.5 million barrels per day (bpd), the same figure Denigni endorses; he also said that with oil around $50 it's in the U.S.'s best interest to see prices rise higher, for the sake of American producers and industry investment.

For the record, a Bloomberg survey of 36 analysts and traders revealed that 31 believe the cuts will be enacted despite pressure of Trump to do otherwise.

Helima Croft, chief commodities strategist at RBC Capital Markets, said, "What Trump's asking Saudi Arabia to do is commit the ultimate act of self-harm: to continue to oversupply a market when they are having their own fiscal constraints."

The major point of uncertainty revolves around the possibility of countries such as Russia, Nigeria, Iraq, and Libya possibly causing an upset in Vienna or in its aftermath, as they have categorically stated their intent to increase output in the New Year; however, at least Ecuador seems to be on board: Carlos Perez, that country's energy minister, remarked, "We will support [the cuts] because it will have a positive impact; the moment we get crude inventories under control, that will have an effect on the price of crude,"

Another wild card is Saudi Arabia, which recently reached a record 11.2 million bpd of production, one factor that Bloomberg suggested would contribute to continued volatility in prices and make the OPEC cutbacks all the more necessary.

The Saudis' vigorous output recently caused an OPEC official to suggest a scheme may be hatched that would make the kingdom look like they're appeasing the U.S. and slashing production at the same time, whereby it would announce plans to retain output targets set in 2016, thus implying a pullback because it is overproducing by nearly 1 million bpd.