Posthaste: Oil prices could plunge 30% within six months if OPEC fails to agree on deep cuts, analyst warns
OPEC countries should administer deep cuts at their meeting in Vienna this week to avoid a plunge in oil prices, according to a research consultancy.
“We have a clear message to the OPEC+ countries: A ‘roll-over’ of the current production agreement is not enough to preserve a balanced market and ensure a stable oil price environment in 2020,” says Bjørnar Tonhaugen, head of oil market research at Rystad Energy. “The outlook will be bleak if OPEC+ fails to agree on additional cuts.”
OPEC and its allies are discussing a plan to increase an existing supply cut of 1.2 million barrels per day (bpd) by a further 400,000 bpd and extend the pact until June, two sources familiar with the matter told Reuters.
According to Rystad Energy’s estimates, the global oil market will be fundamentally oversupplied to the tune of 0.8 million barrels per day (bpd) in the first half of 2020.
A 1 million bpd surplus of oil can be expected to cause an oil price decline of around 5 per cent per month, implying a potential drop of 30 per cent over six months, Rystad estimates.
“If OPEC and Russia don’t extend and deepen their cuts, we could see Brent Blend dip to the $40s next year for a shorter period,” Tonhaugen said. Brent futures were trading just under US$61 per barrel this morning.
However, RBC Capital Markets said there’s no widespread enthusiasm for a deeper reduction among OPEC members at this time, though if prices were to move appreciably lower in the immediate run-up to the meeting, a cut in the 1.6 -1.8 million bpd range could come under serious consideration.
“Barring any dramatic market developments, the emphasis will likely be on further tightening the market through better compliance enforcement,” Helima Croft, Head of Global Commodity Strategy at RBC said in a report.
The combination of prospects of low oil prices and Canadian infrastructure bottlenecks means oilsands companies have pulled back on capital spending next year. Suncor Energy Inc. said last night its oil related capital will remain flat year over year, while Husky Energy Inc. said earlier this week that it’s shaving off $500 million from its planned capital spending for 2020 and 2021.
Here’s what you need to know this morning:
Prime Minister Justin Trudeau attends the North Atlantic Treaty Organization (NATO) Leaders Meeting in London
Ian Anderson, President and CEO of Trans Mountain, Hon. Seamus O’Regan, Minister of Natural Resources, Government of Canada, Hon. Sonya Savage, Minister of Energy, Government of Alberta, the Enoch Cree Nation and local government representatives for an event to mark the start of right-of-way construction for the Trans Mountain Expansion Project
Morgan Stanley Global Consumer and Retail Conference in New York
BMO Boston Growth Conference
Piper Jaffray Healthcare Conference in New York
Agriculture Minister Marie-Claude Bibeau will address delegates at the Union des producteurs agricoles (UPA)’s Annual General Congress
Corporate Earnings: Bank of Montreal
Foreign investors continue to seek opportunities in Canada, despite the downturn in oil and gas sector, which has historically been the country’s investment magnet. While foreign investment figures have not matched the heady days of 2014 and 2015 that saw mega oil and gas deals, foreign investment in the country hit $71.4 billion in the first nine months of the year, according to Statistics Canada.