Oil price: which way will the market go?
Oil price: which way will the market go?
Feb 1, 2016
Most analysts doubt a supply cut deal is possible, but reports continue to keep hopes alive
The oil price appears to be at a critical junction from which it could turn back sharply lower in the coming months or embark on a sustained rally.
Having hit a near 13-year low earlier this month of around $27 a barrel, international benchmark Brent crude has been rising over recent sessions and peaked at close to $36 in Asia overnight. The price has long since decoupled from the actual cost of production and is now dependent on whether there will be a deal to cut global supplies, which still exceed demand by at least one million barrels a day.
Speculation that such a deal is close has driven the rally of the past few sessions. Russian officials claimed to have received an offer from the Saudi Arabia-dominated Opec cartel for a coordinated production cut of five per cent and said a meeting could take place in February. But there is considerable debate that this apparent rapprochement will lead to material actions.
"We do not expect such a cut will occur unless global growth weakens sharply from current levels, which is not our economists' forecast," Goldman Sachs analysts wrote, in a note reported by Reuters. Goldman was last year the first to predict the oil price could drop to $20 or below – there have since been forecasts of as low as $10 a barrel.
Doubts on the deal are widespread and are based, says the Wall Street Journal, on the fact Saudi Arabia has denied being the source of the offer to Russia, as well as another Opec oil power, Iran, remaining locked in proxy wars with the Saudis and so being unlikely to participate in any agreement after re-emerging from export sanctions. This, in turn, "makes it hard for Saudi Arabia to take the lead".
The oil price appears to be at a critical junction from which it could turn back sharply lower in the coming months or embark on a sustained rally.
Having hit a near 13-year low earlier this month of around $27 a barrel, international benchmark Brent crude has been rising over recent sessions and peaked at close to $36 in Asia overnight. The price has long since decoupled from the actual cost of production and is now dependent on whether there will be a deal to cut global supplies, which still exceed demand by at least one million barrels a day.
Speculation that such a deal is close has driven the rally of the past few sessions. Russian officials claimed to have received an offer from the Saudi Arabia-dominated Opec cartel for a coordinated production cut of five per cent and said a meeting could take place in February. But there is considerable debate that this apparent rapprochement will lead to material actions.
"We do not expect such a cut will occur unless global growth weakens sharply from current levels, which is not our economists' forecast," Goldman Sachs analysts wrote, in a note reported by Reuters. Goldman was last year the first to predict the oil price could drop to $20 or below – there have since been forecasts of as low as $10 a barrel.
Doubts on the deal are widespread and are based, says the Wall Street Journal, on the fact Saudi Arabia has denied being the source of the offer to Russia, as well as another Opec oil power, Iran, remaining locked in proxy wars with the Saudis and so being unlikely to participate in any agreement after re-emerging from export sanctions. This, in turn, "makes it hard for Saudi Arabia to take the lead".
http://www.theweek.co.uk/oil-price/60838/oil-price-which-way-will-the-market-go
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