The Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed to their biggest production cut since the start of the Covid-19 pandemic in Vienna on Wednesday (Oct 5), a move that drew a swift rebuke from the US, and prompted Goldman Sachs Group Inc to increase its price forecast for global benchmark Brent crude this quarter.

 

Here’s what leading analysts have to say about the oil market after the group pledged to slash daily output by two million barrels from November:

 

Goldman Sachs

 

“All the developments we have seen on the supply side at this point very much sets the stage for what we believe will be higher prices into the end of this year,” Damien Courvalin, the head of energy research, told Bloomberg TV. The bank increased its fourth-quarter estimate for Brent by US$10 to US$110 a barrel.

 

UBS Group AG

 

The oil market is expected to tighten further and Brent will advance above US$100 over the coming quarters, analysts including Giovanni Staunovo said in a note. The OPEC+ cut will combine with the European ban on Russian crude imports, the likely end of Organisation for Economic Co-operation and Development (OECD) releases of strategic oil reserves, and higher demand from gas-to-oil switching this winter to squeeze the market.

 

ING Groep NV

 

The move is enough to dramatically change the balance for next year, pushing the market into a deficit for the whole of 2023, Warren Patterson, the Singapore-based head of commodities strategy at ING Groep NV, said in an interview. There is a clear upside to the bank’s Brent forecast of US$97 a barrel for next year, he said. However, further releases from US strategic reserves are seen as possible, although they would probably have only limited impact.

 

Citigroup Inc

 

While the reduction is large on paper, the effective cut will be much smaller because the group is already failing to reach their quotas, analysts including Francesco Martoccia and Ed Morse said in a note. The move could backfire on OPEC+ if it hits economic activity and oil demand further, they added.

 

RBC Capital Markets

 

The actual cut will likely be about one million barrels a day, with Saudi Arabia accounting for more than half, analysts including Helima Croft said in a note. While the White House signalled there could be further releases from the Strategic Petroleum Reserve, there’s unlikely to be another blockbuster release in the near term, they said.

SPI Asset Management

 

“The oil complex is busy gauging the complexities of the actual cut, while factoring in the misalignments between the production and quota,” managing partner Stephen Innes said in a note. Brent crude could push back above US$100 in the next few quarters, he said.

 

ESAI Energy

 

“This agreement is moderately bullish for prices since the market is indeed in surplus today,” Sarah Emerson, the company’s managing principal, said in a note. “Next month’s decision on OPEC+ production in December will determine if it becomes a more substantially bullish development for the winter.” 

 

 - Bloomberg