Goldman Sachs analysts wrote in a report published on late-Monday, increased hopes of an extension of the OPEC oil output cut deal are underpinning oil prices, but there are risks for a renewed surplus later next year, as reported by CNBC.
Key Quotes:
"A nine-month extension would normalize OECD inventories by early
2018, in our view, but we see risks for a renewed surplus later next
year if OPEC and Russia's production rises to their expanding capacity
and shale grows at an unbridled rate."
"Costs will also play a role in setting shale's growth path but we do
not forecast sufficient inflation at this point to achieve the required
slowdown next year."
"In the current environment, we believe that the largest imbalance is
the potential for a large surplus in 2018, leaving low deferred prices
to resolve this credible threat. Low-cost producers selling their output
in the spot market should further be incentivized to reduce
inventories, to generate the backwardation linking spot oil prices near
current levels and low deferred oil prices."
"Such a ramp-up in OPEC and Russia production would occur in the face
of still rising non-OPEC production outside of US shale, with legacy
projects started through 2014 still coming online in Brazil, Canada and
the North Sea in particular."
"Achieving this will be difficult, but we see templates in both
OPEC's modus operandi of the 1990s of managed but flagged growth and the
rationalization of shale growth in U.S. gas, both with backwardation."
Source:
https://www.fxstreet.com/news/goldman-sachs-warns-of-2018-oil-glut-amid-optimism-over-opec-cut-extension-cnbc-201705230930
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