Goldman Says OPEC Deal May Add Up To $10 To Price Of Oil, Two Days After Cutting Oil Price Target By $7

Tyler Durden's picture

Goldman has done it again. Two days after the central banker-incubator cut its year end price target from $50 to $43, admitting the previously anticipated rebalancing will take longer to achieve, and now expects "a global surplus of 400 kb/d in 4Q16 vs. a 300 kb/d draw previously", and followed the next day by a report in which it said that not even an OPEC deal would stop oil going lower, overnight the very same analyst, just 24 hours after saying the opposite, Goldman's Damien Courvalin said that the OPEC agreement will "likely provide support to prices, at least in the short term" and added that the announced production quota should boost the price of oil by $7/bbl - $10/bbl. Again: this is two days after cutting the 2016 price target by $7, and one day after saying an OPEC deal would have no impact.

Still, trying to avoid looking like a total flip-flopper, Courvalin adds that "at the historical average 4.8% production beat relative to quotas, this target would be 33.7 mb/d, above current production levels. It has historically taken a fall in oil demand to ensure quota compliance, as in that case, production is forced lower by a decline in refinery intake around the world. This is not the case today with resilient demand growth" and said that "we maintain our year-end $43/bbl and 2017 $53/bbl WTI price forecasts given: (1) uncertainty on this proposal until it is ratified, (2) likely quota beats if ratified, (3) potential for production above our cautious forecasts in areas of disruptions (as was the case today in Libya and KRG), and (4) our conservative supply forecasts outside of OPEC for next year."

Then again, the only thing that will be stuck in algos' random access memory is that Goldman now expects oil to rebound by up to $10/bbl, which may explain why oil is now rolling over.

Here is Goldman's full note for those who care:

OPEC buys time

OPEC members agreed to limit output today, although no quotas were formally set. This agreement is the first since the oil bear market started in 2014 and as such will likely provide support to prices, at least in the short term. However, we maintain our year-end $43/bbl and 2017 $53/bbl WTI price forecasts given: (1) uncertainty on this proposal until it is ratified, (2) likely quota beats if ratified, (3) potential for production above our cautious forecasts in areas of disruptions (as was the case today in Libya and KRG), and (4) our conservative supply forecasts outside of OPEC for next year.

OPEC members agreed today in Algiers to reduce production to a range of 32.5 to 33.0 mb/d, down from 33.2 mb/d in August (based on OPEC secondary sources). As of now there are no further details and the agreement is scheduled to be ratified at OPEC’s next official meeting on November 30. This agreement is the first since the oil bear market started in 2014 and as such will likely provide support to prices, at least in the short term. However uncertainty is set to remain high in coming months, with so far no comments from the Saudi minister. Further, the Iraq minister commented that secondary sources for oil production are too low, with his country’s output potentially 300 kb/d higher than such measure implies, a gap of nearly half of the proposed production cut.

If this deal follows the proposal made by Algeria as reported by Bloomberg this morning, it would leave Libya and Nigeria exempt, feature a production target for Saudi Arabia, allow for some growth in Iran and Venezuela and require a 1.6% production cut elsewhere relative to average January-August production levels.

Through 2017, such a proposal would keep production 480 to 980 kb/d on average below our forecast. Strictly implemented in 1H17 and all else constant, the production quotas announced today should be worth $7/bbl to $10/bbl to the oil price. However, at the historical average 4.8% production beat relative to quotas, this target would be 33.7 mb/d, above current production levels. It has historically taken a fall in oil demand to ensure quota compliance, as in that case, production is forced lower by a decline in refinery intake around the world. This is not the case today with resilient demand growth.

We reiterate our year-end $43/bbl and 2017 $53/bbl forecasts given: (1) uncertainty on this proposal until it is ratified especially as it relates to Saudi cuts and Iran caps, (2) likely quota beats if ratified, (3) upside surprises to disrupted production as announced today (Libya, KRG) with potential for more given our cautious forecasts in these countries, and (4) our conservative supply forecasts outside of OPEC for next year. Since we see risks to production from countries not targeted by today’s quota as skewed to the upside, we view a strict implementation of today’s OPEC proposal as normalizing the risks around our projected price path.

  • Today’s proposal does not impact our expectation for weaker fundamentals in the coming months: (1) the deal does not impact current production as it is scheduled to be finalized at the November 30 meeting, and (2) we learned today that production in Libya/Iraq is currently 180 kb/d above our expectation.
  • Longer term, we remain skeptical on the implementation of the proposed quotas, if ratified. Strict implementation of today’s deal in 2017 would represent 480 to 980 kb/d less output than we forecast. However, our forecasts assume little reversal in the c.1.0 mb/d of short-term disrupted production, with recent data for these countries already putting that forecast at risk. Further, we have remained cautious on the delivery of new projects outside of OPEC next year, with a combined 400 kb/d lower forecast vs. guided deliveries. The net of all these risks is close to zero, on our estimates, instead of skewed to higher production before today’s quota announcement. As a result, we reiterate our $43/bbl year-end forecast as well as our $53/bbl for next year.
  • Our conviction that OPEC production cuts will be ineffective long term is rooted in our view that the flattening of the oil cost curve created by shale will lead to a loss of pricing power by low-cost producers, leaving them with only volume growth to sustain fiscal revenues. As a result, if this proposed cut is strictly enforced and supports prices, we would expect it to prove self defeating medium term with a large drilling response around the world. This is what occurred following the January 1987 OPEC production cut which led to a rebound in non-OPEC onshore rigs before prices sold off again setting the stage for a decade long steady increase in OPEC drilling.

Exhibit 1: No formal proposal has been announced except for a headline production level. The below table illustrates the proposal made by Algeria ahead of the meeting.
Crude oil production (thousand barrels per day)

 

Exhibit 2: Compliance to quotas is historically poor, especially when oil demand is not weak
OPEC production of countries under quota vs. their production target (lhs); Year-over-year change in global oil demand (rhs). In thousand barrels per day

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SillySalesmanQuestion's picture

Is Gartman working for Goldman now...?

VinceFostersGhost's picture

 

 

May Add Up To $10 To Price Of Oil, Two Days After Cutting Oil Price Target By $7

 

Gotta love these fukin guys.

 

 

VinceFostersGhost's picture

 

 

The king of the Muppets sez......it's a buy!

 

I'm gonna buy it exactly 27 times.

philipat's picture

Free advice for Muppets from Goldman? Hahahahahahahahahhahah..........

Paul Kersey's picture

Typical Goldman "signal left, turn right' tactic.  There should be a special financial terrorist list for the Goldmen.  

f_symbols's picture
f_symbols (not verified) Paul Kersey Sep 29, 2016 8:13 AM

My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do... http://tiny.cc/3jvbfy

Stainless Steel Rat's picture
Stainless Steel Rat (not verified) f_symbols Sep 29, 2016 8:18 AM

And so it begins...

Dental Floss Tycoon's picture

 

 

Two days after the central banker-incubator cut its year end price target from $50 to $43, and followed the next day by a report in which it said that not even an OPEC deal would stop oil going lower, overnight the same analyst said that the OPEC agreement will "likely provide support to prices, at least in the short term"

 

It's the newest thing....Flash analysts!

 

 

StackShinyStuff's picture

I know - who gives a fuck about Goldman, unless we're talking Stolper and his FX picks.  I wanna know what Gartman says.  I need something I can FADE goddammit!!!

buzzsaw99's picture

speaking of not caring, nobody gives a fuck what goldie says anymore either.

buzzsaw99's picture

this is the future: knowing exactly what will happen in the future and STILL NOT BEING ABLE TO MAKE ANY MONEY.

BetterRalph's picture

Knowing who the trators are, but not being able to make swift change.

Arnold's picture

What evil goes through algorithm minds?

The Goldman knows.

Bwha,ha,ha,ha.

BetterRalph's picture

10-7=+3 rounding it down to ZERO.

Flabio's picture

"I see no risks to Russia’s oil production. So far, it is not clear which month will be the basis for agreements," she said.

She said everything will depend on the terms of the oil production freeze deal. Thus, if oil exporting countries agree to freeze oil output at a level of one of the recent months when Russia demonstrated record-breaking production dynamics, Russia will be able to increase yearly output:

"If [oil output] is fixed at a high month, the results of the year will show growth all the same." 

Russia’s oil production has been growing for several years in the row. Thus, Russia’s daily output in 2015 was 10.726 barrels of oil and gas condensate. The year’s output exceeded 534 million tonnes, or by 1.4% up on the previous year. Russian Deputy Minister of Energy Kirill Molodtsov said oil production in Russia in 2016 may reach 540-545 million tonnes, or even more.

Earlier, he said Russia has set a new record of daily oil output when it exceeded 11 million barrels on September 8.

 



More:
http://tass.com/economy/902894

Arnold's picture

Cover all the bases.

 

--Goldie

Cloud9.5's picture

Goldman speaks to benifit itself.

Cluster_Frak's picture

OPEC only said they agreed to agree to do something in November. They did not say we are cutting period. Everyone waits untill November or December (Fed). I wonder if major decisions are only going to be taken after the US election. I would expect massive market moves come that time.

Arnold's picture

Prepare to buy the Trump Dump.

 

--Arnold

VinceFostersGhost's picture

 

 

The Trump train is leaving the station.......you thought it would backup......you were wrong.

buzzsaw99's picture

it's almost like the squid and the sauds are in cahoots. almost. :roll:

oncemore's picture

2 days ago, reading GS statement, I did have the feeking, that it is nothing else, but wishful thinking. Throwing statements without numbers and without any analysis. Pure propaganda.

venturen's picture

Goldman always takes the other side of their recommendation.....die you muppets!

Last of the Middle Class's picture

Now goldman is piling on the pump and dump market. Must be a money shot coming soon.

NEOSERF's picture

That's a lot of numbers and analysis for something that will add up to nothing but cheating and words in the wind...GS should have stuck with their original assessment with a statement that indicated "we will believe it when we see it".

Downtoolong's picture

 

“Accountability, we don’t need no stinking accountability, especially not for our predictions.”

 

It makes me wonder who they are front-running with this shit now, because, not even a Muppet is naive enough to fall for it this many times, and most of them have already been slaughtered anyway.

  

koda's picture

Oil prices must and will go up. Okay, when? The number one driver of oil prices nowadays is not all the numbers we are bombarded with but the sentiment of traders.The oil will rise only when futures traders figure they will make more money going long than short. This hasn’t happened yet but the fundamentals ensure it will. And when it does, the speculators will pile in and WTI will blow through US$60 quickly and likely not slow down thereafter. This will set the stage for another massive ramp up ensuring yet another crash. Because volatility is not only assured but required

In.Sip.ient's picture

The production reduction is about 1Million bbls/day.

That is almost, but not quite, enough to bring production

in line with consumption.

 

So, a $10 rise is no big deal.  A minor blip in consumption

or a minor hit on the production side, and oil then goes

a good deal higher that they want.  Say $100/bbl???

 

All you really need to know right there.

Oh, and all you really need to know about

how "hair-triggered" the entire system is... !!!