Too premature to call29 May 2018 08:50
Fundamentally, little has changed. Analysts from Goldman Sachs Group Inc. wrote in a report last week that Saudi Arabia and Russia�s announcement lifts some of the uncertainty on whether and when the Organization of the Petroleum Exporting Countries and Russia would increase production. The global investment banking firm does not view this as a material change to its bullish oil outlook.
According to Goldman Sachs, this response is occurring because of a tight oil market. Secondly, its magnitude is still uncertain but, even at one million barrels a day (mb/d), such an increase would simply offset the involuntary production declines with the group (of oil producers) still committed to restraining output. Thirdly, even at one one mb/d, its gradual implementation would leave the market in deficit through the September quarter, it added.
It must be noted here that production problems in Venezuela continue, which means incremental supply may not be very meaningful to balance oil markets.
According to Jain of BNP Paribas, overall lack of capex (capital expenditure) investments in the oil industry will weigh on output. �Sure, US shale oil production is increasing; however, lack of infrastructure will prevent more oil from hitting the market,� he added. Add to that, demand for oil is robust.
In short, while lower crude oil prices are welcome, it may be premature to celebrate the current cooling off.