The first coordinated decision on oil output between OPEC and producers outside the group in 15 years is not going to revive crude prices, according to Goldman Sachs Group Inc.
The agreement between Saudi Arabia and Russia to freeze production will have “little impact on the oil market as proposed, while there remains high uncertainty that it even materializes,” analysts, including Jeffrey Currie said in a note emailed on Wednesday, Bloomberg reported.
The bank reiterated its call for prices to remain volatile while being bound to a range in the coming months until inventories stop increasing.
Oil is trading near a 12-year low as record stockpiles continue to swell more than a year after the Organization of Petroleum Exporting Countries decided to keep pumping to defend market share amid a global glut. Coupled with record Russian output and US shale fields producing more oil and gas than previously estimated, prices could slide below $20 a barrel before the rout is over, Currie said last week.
“While an agreement could create the perception that more could be achieved, such as production cuts, we believe this would not be sufficient to set a floor on prices as they will only stabilize once inventories stop building,” according to Goldman, which predicts that stockpiles may stop increasing in the second half of this year.
Additionally, a broader reduction in output would be self-defeating as shale producers could boost output in 80 days when prices start to recover, Currie said.
Oversea-Chinese Banking Corp. thinks a production cut will occur “sooner or later”, economist Barnabas Gan said in a report on Wednesday. OPEC may call for an emergency meeting as early as March as the slump in oil prices squeezes profit margins, he said.
“We think that a production cut in the major oil producers will happen in 2016,” said Gan. “This event, coupled with demand growth to stay positive, would rally both WTI and Brent to our yearend forecast of $50 a barrel.”
Currie noted that Iran has continued to comment that it is committed to growing production and regaining market share, suggesting that any deal involving Iran would likely need to allow for some production growth.
“We remain conservative on our Iranian production growth forecast, given the only limited increase in exports achieved so far and the limitation that the remaining US sanctions create in ramping up output,” he said.
