Goldman Sachs: OPEC Deal Will Not Change Price of Oil Through 2017

Goldman Sachs announced that the deal agreed to by member of OPEC to cut its oil production might provide support of prices in the short term, but chances are it would not change the outlook on supply that much.

Goldman said through a prepared statement to its investors that it would stick with the forecasts it has for WTI at a price of $43 per barrel for the end of 2016 and $53 per barrel for the end of 2017.

Goldman Sachs analysts said that if the proposed cut was strictly enforced and succeeded in supporting prices, it would be self defeating during the medium term, with a large drilling response across the globe.

Media outlets have reported from the OPEC meeting in Algeria that OPEC members agreed to cut output of oil for just the first time in 8 years.

It was reported that members of OPEC would limit the range of production to between 32.5 million and 33 million barrels a day, which was down just slightly from output in August of 33.2 million barrels per day.

However, few details were available about the agreement reached at the oil cartel’s informal meeting.

After the news was released, prices of oil surged almost 5% with WTI reaching $46.75 a barrel. Without this deal, analysts had said that oil could drop to as low as $40 per barrel or even lower.

It was estimated by Goldman that the proposal would keep oil production to as much as 980,000 barrels per day less than the forecast of the bank through the end of 2017.

Analysts at Goldman Sachs said production quotas that were announced Thursday would be worth between $7 and $10 per barrel to the price of oil.

However, the analysts added that compliance with the quotas has been poor historically especially when the demand for oil is not weak.

Goldman noted as well that risks had been skewed to the upside for oil production from nations not targeted by the deal reached by OPEC, citing that output from Iraq and Libya was already more than 180,000 barrels per day above the expectations of the bank.

Societe Generale was in agreement with Goldman saying it did not think the new deal at OPEC would affect its oil price estimates. The bank announced it would be maintaining its forecast of Brent reaching $50 per barrel during the fourth quarter of 2016 and $60 during the 2017 fourth quarter.

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