Goldman says Oil Bulls take care of themselves while uncertainty takes over OPEC


OPEC is in a quagmire, foreshadowing a disappointment with the oil bulls that have the group and its allies extending production cuts in nine months, according to Goldman Sachs Group Inc.

Saudi Arabia's proposal Extending the cuts from its current maturity on March 31 until the end of 2018 has not been backed by Russia, which provides the second largest portion of reductions, the bank said in a November 27 memo. Market data points to an accelerated decline in crude stocks, which were the original target of the reinforcements when they were approved last year.

The problem is that prices, time differentials and the positioning of hedge funds reflect a high probability that the Saudi proposal will be adopted at the meeting on November 30, badysts wrote, including Damien. Courvalin. Crude has risen more than 40 percent since June, and is close to the highest level since 2015. If the outcome of the meeting does not meet expectations, prices could fall, according to Goldman.

"With rhetoric that does not coincide with logic for the first time in years, we believe that the outcome of this meeting is much more uncertain than usual," Courvalin wrote. "We believe that oil prices have surpbaded the fundamentals and that price risks are skewed downwards at Thursday's meeting."

Ministers begin arriving in Vienna on Tuesday for the 173rd meeting of the Organization of the Petroleum Exporting Countries. Brent crude traded at $ 63.62 per barrel at 11:48 a.m. Singapore time, down 43 percent from the lowest point of the year on June 21.

OPEC and several non-OPEC nations led by Russia agreed last year to cut production by a combined total of 1.8 million barrels per day from January 2017 with the aim of reducing a global surplus that caused the biggest fall in prices in a generation. Stocks in developed nations rose to more than 188 million barrels above the five-year average in January, according to the International Energy Agency. That dropped to 122 million in August.

Outline of the offer

While OPEC and Russia drew up an outline of an agreement to extend the oil production cuts until the end of next year, both sides are still hammering crucial details, from agreement with the people involved in the conversations. Russian companies such as the state Rosneft Oil Co. PJSC have been affected by the agreement because they had to delay plans to develop new projects, according to a research note on November 26 of ESAI Energy LLC. [19659002] The extension of the cuts could also hurt the OPEC members in the long term, since the higher prices will attract more investment towards production from outside the group and its allies. US drillers have added 18 oil rigs in the past three weeks, according to the Baker Hughes unit of General Electric Co., and major oil companies recently reported higher deflation of costs for offshore megaprojects, Goldman said.

"In fact, prices remain at current levels in the absence of new interruptions, higher are the downside risks" for 2019 prices, Courvalin said in the note. "First, from a greater supply not belonging to OPEC and second from the realization by OPEC that its cuts or rhetoric have been surpbaded, leading to a potentially more aggressive production ramp so as not to lose market share or revenue."

– badistance from Serene Cheong

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