• Thursday, March 28, 2024
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Why OPEC+ talks collapse could push oil price to $80

Crude-Oil

Some of the world’s biggest investment and energy intelligence firms are predicting oil prices could hit $80 after talks collapsed among ministers from OPEC+ — consisting of the Organisation of the Petroleum Exporting Countries (OPEC) and allies.

On Tuesday, Brent crude climbed 62 cents, to $77.78 a barrel — highest since October 2018, while the US West Texas Intermediate (WTI) crude futures traded down 47 cents, or 0.6 percent, at $74.69 after touching $76.98 for its highest since November 2014.

OPEC and non-OPEC partners, a group of some of the world’s most powerful oil producers, abruptly abandoned plans to reconvene on Monday after last week’s meetings unexpectedly failed to broker a deal on oil production policy. The group did not set a new date to resume talks.

Read Also: Oil prices extend gains after OPEC+ talks called off

It means no agreement has been reached on a possible increase in crude production beyond the end of July, leaving oil markets in a state of limbo just as global fuel demand recovers from the ongoing coronavirus pandemic.

UBS

UBS Group AG, a Swiss multinational investment bank and financial services company founded and based in Switzerland, expects the oil market to tighten further and that could result in Brent climbing to $80 a barrel by September.

“The alliance could still reach an agreement; given negotiations will likely continue among member states. It remains unclear if the failure to agree on a supply deal will translate into lower compliance rates next month,” UBS’s analyst Giovanni Staunovo says in a note.

UBS expects the release of Saudi Aramco’s official selling prices for August in the coming days to provide more clarity.

Read Also: Nigeria’s oil revenue threatened as OPEC+ mulls production raise at March meeting

ING

ING Group, a Dutch multinational banking and financial services corporation headquartered in Amsterdam, says if OPEC keeps output unchanged in August that should be bullish for prices, but the likelihood that members actually keep production steady is not very high.

ING’s Warren Patterson, head of commodities strategy in Singapore, says members will probably start pumping more, and there will likely be a breakdown in the broader deal.

“There is potential for a price war like last year, but all involved will try to avoid that,” Patterson notes.

Read Also: What OPEC+ deadlock means for Nigeria

He notes that a clear solution would be to separate the two elements of the deal, agree on the 2 million barrels a day supply increase for August to December, and then tackle the extension of the deal at a later date.

Citigroup

Citigroup, an American multinational investment bank and financial services corporation headquartered in New York City, believes Brent is expected to breach $80 a barrel sooner than expected following the breakdown of the OPEC+ talks.

The bank’s analysts Ed Morse and Francesco Martoccia expect that OPEC+ countries are likely to come under pressure from the governments of the world’s big economies for not acting to prevent expensive fuel prices when the group has a lot of spare capacity.

“That could even provoke new NOPEC legislation in the US. Sooner or later they’ll succumb to the pressure and add more oil to the market at a level higher than initially planned,” Citigroup notes.

FGE

FGE, a global oil and gas consultancy that provides leading independent research, analysis, consultation, and advisory services to diverse client bases across the world, says if there is no increase in production, then oil at $85 to $90 a barrel is on the cards.

“However, it’s likely some sort of compromise will be reached over the next one to three weeks, although prices are likely to rise until this happens,” Fereidun Fesharaki, chairman of industry consultant FGE, states in a Bloomberg TV interview.

With prices at these levels, FGE expects there will probably be a lot more US shale production coming back next year.

RBC Capital Markets

Although back-channel talks are reported to be continuing, RBC Capital Markets, a global investment bank, says questions about the UAE commitment in OPEC will likely grow in the coming days.

“Since the launch of its Murban benchmark in March, there has been a distinct question mark over the durability of UAE’s OPEC membership and its willingness to continue idling its expensive spare capacity,” analysts Helima Croft and Christopher Louney say in a note.

“This UAE-Saudi Arabian dispute appears to be more than about oil policy, with UAE seemingly intent on stepping outside the kingdom’s shadow and charting its own course in global affairs,” it adds.

Rystad Energy

Independent energy research and business intelligence company, Rystad Energy, says a no-deal that keeps output unchanged after July is not an outcome that any of the OPEC+ members want.

“The market could see an immediate price correction if OPEC+ eventually agrees to increase output by well over 500,000 barrels per day in August,” oil markets analyst Louise Dickson says in a note.

Dickson adds, “All eyes will be on potential leaks from behind-closed-doors unofficial negotiations. It could be a wild price ride in either direction.”

Concern for Nigeria

Read Also: What OPEC+ deadlock means for Nigeria

The news comes with a mixed reaction for Nigeria who relies heavily on earning from oil exports, and even more cheery for members of the OPEC, who have had to bear the brunt of oil production cuts in the past in a bid to rally up prices.

A much higher oil price would be good news for Nigeria, which is currently struggling to meet its revenue targets, but economists have also said that the fuel subsidy regime could neutralise potential benefits.