Reports emerging on Tuesday showed that OPEC+ deal could shoot up oil prices back to $70 per barrel next year, assuming all goes according to plan.
The combination of raising the production cuts to 1.7 million barrels per day (mb/d), including the unilateral over compliance by Saudi Arabia, adding another 400,000 bpd of additional cuts, shoked the market last week.
Reports have it that, Saudi Arabia hopes to apply pressure to all member countries to comply with their allotted reductions, while Oil prices jumped immediately after the deal was announced.
Analysts said, while the initial reaction was positive from a pricing perspective, the reactions have since become more mixed.
Bank of America, Merrill Lynch projected that the first quarter could still see a surplus of 700,000 bpd, while high compliance with the cuts would only slash that surplus by 200,000 bpd, making it sceptical that all producers would comply, with Iraq a particular focus.
Julian Lee over at Bloomberg Opinion stated that Saudi Arabia has really staked its credibility on this deal and it will either succeed in getting all producers to comply with the deal, or else Riyadh may decide to flood the market when the deal expires in March.
Bank of America which also had an eye on this risk factor stressed that, if other members are producing assiduously above their targets, Saudi may opt to boost output to its agreed quota levels.
Lynch in his opinion stated that, if everyone works out, OPEC+ might be able to claim some degree of success coupled with other positive economic developments, such as a pickup in global inventory restocking and a small US-China trade deal could push Brent to $70 price target ahead of schedule.
Daily Times had earlier reported that Goldman Sachs revised up Brent price for 2020 to only $63 per barrel, up from $60 previously, with supply-demand margin.
Others largely shrugged at the deal, pointing out that actual production levels from OPEC+ aren’t all that different from the announced numbers, as what is expected by participants to abide by their new commitments and also adjust the countries economic forecasts accordingly.
Daily Times gathered that the overall impact on price is likely to be limited with the agreement doing more to redistribute the existing cutting burden than to alter actual absolute production by the 24 adherent.
Raymond James was more supportive of the market outlook. The bank sees WTI averaging $65 per barrel in 2020 and Brent averaging $70 but it sees the upward trajectory accelerating into 2021, with WTI averaging $75 and Brent averaging $80.