(Adds more reactions)
Feb 16 Top oil producers Russia and Saudi Arabia
agreed on Tuesday to freeze output levels in what could be the
first joint OPEC and non-OPEC deal in 15 years aimed at tackling
a growing glut and helping prices recover.
A major sticking point in sealing a deal may be Iran, which
was absent from the talks and has been determined to raise
Below are reactions from banks and market analysts on the
impact of the deal on the crude market:
* GOLDMAN SACHS: Deal to have little impact on oil markets
"The details of this agreement suggest that such a freeze
will have little impact on the oil market as proposed, while
there remains high uncertainty that it even materializes.
"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, which at current
proposed output levels only occurs in 2H16."
* CITI FUTURES: A freeze is not a cut
"This is far more of a political statement than a support
for oil prices in our view, an offer that Iran has little choice
but to refuse.
"We expect Iran to reject limits on its exports, which lets
other producers with a technical out for ignoring the freeze,
while Saudi Arabia gets to claim that low prices are Iran's
fault for refusing the unacceptable offer.
"The freeze is a gesture, not a reason to reduce our
forecast for OPEC total production to rise to 33 million bpd as
Iran continues to ramp up production and others either maintain
output as planned or go ahead with planned increases."
* DEUTSCHE BANK: Negotiations yield little
"Not only has talk moved from cuts to a freeze, but such a
freeze comes from producers who weren't expected to raise
production materially in any case (Russia, Venezuela, Saudi
Arabia and Qatar).
"A credible agreement to hold production flat by all OPEC
members at the January level would be quite meaningful in
tightening forward expectations of market balance as it would
remove the threat of incremental Iranian volumes into 2017."
* MACQUARIE: Not a game-changer but step in right direction
"Arguably, a positive outcome is Iraq giving up the right to
further growth; eliminating the tail risk of Iraqi production
ramping up significantly in 2016.
"The meaningfulness of this agreement lies in the fact that
it may mark one of the first coordinated steps by OPEC in a
process to assess whether the members of the organization have
sustained enough pain emanating from the low price and will
re-install its previously foregone policy of market stability.
"Our analysis suggests that rebalancing is occurring and
that we are on track for a rebalance to seasonal norms by 3Q16.
A positive outcome on these talks could accelerate the
* BARCLAYS: Market still between a rock and a hard place
"Even if the agreement is successful, the upside for oil
prices that would result looks limited, and OPEC still faces the
dilemma of aiming for either higher prices or market share, but
is unable to achieve both.
"Any positive oil price impact from this move, beyond a
knee-jerk covering of short positions, is highly contingent on
other key oil producers joining in, and although the announced
plan is the first concrete attempt at limiting output that Saudi
Arabia has publicly supported, a lot of hard negotiations lie
ahead if it is to prove successful.
"Even then the key beneficiaries could turn out to be U.S.
(shale) oil producers."
* CAPITAL ECONOMICS: Important deal, but plenty of room for
"We are wary ..., as it was unlikely that either country
would have increased production further anyway. For the deal to
have any teeth, Saudi Arabia in particular needs to be willing
to cut output, not least to offset the increased supply still to
come from Iran."
The research note listed three reasons for caution:
(1) Iran has indicated it is unwilling to freeze output, (2)
the success of the deal will depend on Russia to play its full
part, and (3) total OPEC output would still be exceptionally
high and maintain the excess supply already in place even if the
deal does go through.
"This might be better than a further increase, but it is not
the output cuts that some in the markets have been hoping for."
* COMMERZBANK: Agreement is on a knife edge
"It remains to be seen whether this will result in the
oversupply being reduced, as this would require Iran and Iraq to
cooperate on the agreement.
"Now that sanctions have been lifted, Iran is hardly likely
to be willing to leave its oil production at the low
sanction-era level of 2.9 million barrels per day given that
Teheran's uppermost priority is to recoup the market share it
* Energy Management Institute analyst Dominick Chirichella:
Market digesting deal's contingencies
"It is too early to decide if this will be a deal that does
not collapse very quickly. For now, the announcement of this
deal could increase the likelihood of further short-covering in
the short term. Whether this is a good opportunity to reset
shorts at higher levels remains a question mark.
"I think the deal is suggesting a weakness in Saudi Arabia
with an opportunity for them to enter into a face-saving
arrangement to move away from their failed market share strategy
as this deal is not a cut (yet) but could eventually lead to a
cut in production down the road."
(Reporting by Nallur Sethuraman and Vijaykumar Vedala in
Bengaluru; Editing by Lisa Von Ahn and Steve Orlofsky)