PARIS (Reuters) - Oil prices will fall further in the absence of an aggressive cut in output by both OPEC and non-OPEC oil producers, Natixis said on Wednesday in its 2016 oil outlook.
The French investment bank said that excess crude and oil products stock will linger going into 2017 without any political changes in the Organization of the Petroleum Exporting Countries
(OPEC) as a cartel and an agreement with non-OPEC members on output cuts.
Saudi Arabia and Russia have reached a deal to freeze oil output at January levels in an effort to counter the prolonged fall in oil prices because of global oversupply, but the deal hangs on whether Iran and other OPEC members will take part.
Natixis lead oil market analyst Abhishek Deshpande told journalists in Paris that a freeze in production was not enough and is likely to unravel, with only an aggressive cut sufficient to mop up excess crude in the market.
“We are still assuming that there is not going to be any such deal right now and there will not be any aggressive cutbacks from non-OPEC producers,” Deshpande said.
Natixis projects excess crude to average more than 1.37 million barrels per day (bpd) in 2016 if OPEC sticks to current strategy on market share and could hit 1.8 million bpd for the next six months if Iran resumes production to pre-sanctions levels, Iraq adds capacity and Saudi Arabia increases output.
“Oil is still bearish and it will take more than one or two years just to get rid of the excess in the market. Stock builds are high. Crude oil (stocks) are at an historic high,” Deshpande said, adding that global stocks are close to 6 billion barrels.
Deshpande said that refineries increased their processing rate last year to take advantage of record gains in refining margins, which has led to a build-up of oil products stocks.
“This year we think that oil products refining margins are going to be under pressure as there is too much in the market and demand growth is not as great as last year,” he said.
Reporting by Bate Felix; Editing by David Goodman