Analysts: OPEC+ production cuts "unlikely to spark major turnaround in prices"

OPEC and its allies will cut production in 2019 by 1.2mn barrels per day

His Excellency Suhail Mohammed Al Mazrouei, UAE Energy Minister
His Excellency Suhail Mohammed Al Mazrouei, UAE Energy Minister

The world watched Vienna as OPEC and its allies met to discuss production cuts for 2019, and speculation grew that they would not be able to reach a deal. Now that the group has agreed to cut production by 1.2mn barrels per day (bpd), it is still difficult to tell how the market will react in 2019.

UAE Minister of Energy & Industry Suhail Mohamed AlMazrouei, also president of OPEC Conference, was positive about the deal, tweeted that "with a cut of 1.2mn bpd we proved we can make a difference and expedite oil market balance in 2019."

However, Golman Sachs and Morgan Stanley have said that uncertainty about the implementation of the production cuts could prevent oil prices from rising and could see them drop further. Other factors, like production in the Permian Basin and in Iran, as well as pressure from US President Donald Trump to keep prices low, could impact the oil price in 2019.

In Emirates NBD's latest report, commodity analyst Edward Bell wrote that "OPEC+ cuts are unlikely to spark a major turnaround in prices or allow them to push back up to above $80 a barrel in Brent in the near term."

While the cuts are expected to help control the increase in inventories, analysts say it won't push the market into deficit. But OPEC+ has proved agile, making several changes in policy this year to respond to market movements and geopolitical situations.

“Production from OPEC members will display a much more flexible profile going forward, responding to near term market conditions," the Emirates NBD reported noted. "Hence we wouldn’t rule out OPEC unwinding or deepening these cuts at their next meeting in April if market conditions warrant it.”

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Oil & Gas Middle East - March 2019

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