Oil futures slipped on Tuesday as Iran and Iraq remained at loggerheads with Saudi Arabia over an oil production cut before a long-anticipated meeting of OPEC ministers the following day. [O/R]
The Organization of the Petroleum Exporting Countries said in September it hoped to cut oil output to 32.5-33.0 million barrels per day from a record 33.64 million bpd to reduce a global supply overhang and bolster prices.
Analysts' belief that the group would finalize a deal, if only to save face, has been eroded in recent days after Saudi Arabia said oil markets would balance next year even without an OPEC output cut, sparking a last-ditch attempt to clinch a deal at Wednesday's Vienna gathering.
Forecasts for oil prices LCOc1 now vary widely.
With a realistic but significant deal, prices could reach $60 a barrel, according to the most optimistic forecast, or barely hit $50, according to the most bearish predictions.
Some market watchers believe prices have found a floor at around $40 a barrel and so would not fall dramatically, should OPEC fail to strike a deal. Others believe the $40 mark could be breached and open the way to $30 a barrel.
GOLDMAN SACHS: PRICE RISK SKEWED TO THE UPSIDE
"If the proposed OPEC production cut to 32.5 million barrels per day is agreed to, we would expect prices to rally to the low $50s per barrel, with observed implementation required to support prices further. If no deal is reached, our expectation of rising inventories through first half of 2017 would warrant prices averaging $45 per barrel through next summer."
"With the Brent market in our view only pricing in a 30 percent probability of a deal being reached and the option market pricing in a $6 per barrel move, we believe that a move to below $40 per barrel would be difficult to sustain. This suggests that price risk is likely skewed to the upside heading into Wednesday."
BARCLAYS: CUT NOW NEEDS TO BE LARGER AS OUTPUT SOARS
"With production continuing to rise through September and October, the implied cut needed on Nov. 30 is now larger than it was and assigning country by country quotas appears more difficult than first thought given arguments over the use of secondary data for production sources. Volatility is set to be high in the oil market in the days ahead."
"If no deal is implemented, further downward pressure is likely. If a deal is secured then oil prices could well move above $50 per barrel relatively quickly."
SAXO BANK: HIGH CHANCE OF 0.8-1.0 MBPD CUT
"In such a case, I see a short-term pop above $50 but at this stage I do not see Brent break above $54/b. Once the dust settles on the deal, the market may begin to ask questions about compliance and a wait and see approach may be adopted during which time the price may drift lower, but not below $45. Failure to agree a deal should remove some of the credibility the cartel has tried to build up since Algiers and the market response could be a renewed sell-off toward the $40 area."
IHS ENERGY: MOST IMPORTANT OPEC MEET SINCE 1973
"A deal will be extremely challenging to deliver given political differences between members ... An agreement of some sort is more likely than not to emerge this week as there are intense financial, political and credibility pressures on OPEC to strike a deal even if it is flawed."
SEB: CHANCE OF OPEC CUT DECLINED SUBSTANTIALLY
"(The Saudi comment on Sunday) is clearly an effort by (Energy Minister Khalid) al-Falih to prepare the market for a no-cut outcome in order to avoid too much of a sell-off in case of an announcement of a no-deal.
"...If OPEC this week announces that there will be no cut we expect the oil price to trade down to $43-44/b but we don't expect it to stay there all that long. It'll likely revert back toward $48/b where it has averaged since the start of June."
COMMERZBANK: OIL AT $40 IF NO DEAL
"OPEC is currently producing roughly 700,000 barrels per day more than is needed. If OPEC's present production level were maintained, this would remain the case until mid-2017. The market would then be balanced only at the end of 2017, assuming that OPEC does not further increase its output. Yet experience in recent months shows that this is unlikely, especially since Libya and Nigeria are likely to grab every opportunity to raise their currently subdued production to a more normal level."
PVM: A CUT FROM WHICH LEVEL?
"OPEC's current production is 33.6 to 33.8 mbpd. Once the dust settles it is less the size of the cut and more the actual production level that it could imply that really matters. Do not take an announcement of a headline cut of 1 mbpd at face value. It could still imply an OPEC production level considerably in excess of 33 mbpd, depending on developments in Libya and Nigeria and the speed and rigor of compliance."
JBC: RUSSIA'S INTENTIONS IN DOUBT
"Russia's possible intention to contribute to a coordinated effort to curb the crude supply overhang remains in doubt despite statements by its energy minister and deputy suggesting that a freeze at current production levels would in effect be equivalent to a cut of 200,000-300,000 b/d. This latter volume is more or less in line with our expected annual supply growth for 2017 of 220,000 bpd but with the recent surge in October, Russia has in fact already reached this higher production level, indicating that any freeze would simply be just that – holding production steady at the recent strong level."
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BANK OF AMERICA MERRILL LYNCH: "DEAL HIGHLY PROBABLE"
"Should OPEC just deliver a half a million barrel deal, we see prices staying around the current levels. For prices to firmly break over $50/barrel, OPEC would have to deliver a 1 mln bpd cut announcement ... Oil may drop to $40 a barrel if the cartel cannot agree to cut."
DNB MARKETS: "$40 BY CHRISTMAS IF NO DEAL"
"Saudi Arabia does not seem very happy about the prospect of another year of oil prices below $50 per barrel and we believe all the cartel members are aware that unless a deal is reached the oil price could fall to $40 by Christmas."
CAPITAL ECONOMICS: "FACE-SAVING AGREEMENT LIKELY"
"In the case of a strong credible deal, with participation from a number of large non-OPEC producers we could see prices go into the high 50's. On the other hand, if there is no deal we could see prices slump to below $40."
ABN AMRO - "75 PCT CHANCE OF CUT"
"If OPEC surprises with a larger cut, or can make sure that non-OPEC producers like Russia would also cut production, then the impact can be bigger and a jump toward $55-60 range can be seen. However, the risk of a disappointment is much bigger. A real failure could push prices below $41 a barrel which would open the way toward the 2016 lows of around $30."
MACQUARIE - "DEAL HAS A 60 PCT CHANCE OF SUCCESS"
"We are reiterating our call that the OPEC deal has a 60 percent chance of success on Nov. 30 with a low $50 price range on success and low $30 on failure.
"If OPEC fails, they will be The Boy Who Cried Wolf, Bill Buckner and the Mayweather-Pacquiao fight all rolled into one. Additionally, OPEC would lose jawboning power immediately and be on its way to dissolution while members are locked in a crude production arms race."
For a graphic on OPEC' struggle, click here
(Reporting by Apeksha Nair and Swati Verma in Bengaluru and by Sabina Zawadzki in London; Editing by Dale Hudson and Mark Potter)