Goldman Warns OPEC Production Cut Extension Will Backfire, Result In Lower Prices

As discussed yesterday, while the Joint OPEC/Non-OPEC Ministerial Monitoring Committee meeting on Sunday did not formally recommend an extension to the oil production cuts agreed last year at OPEC’s Vienna summit, several OPEC members announced their support for such a move during this weekend’s meeting in Kuwait. The Committee is now expected to deliberate such an extension at its April meeting at which point OECD inventories are expected to be well short of the targeted ’5-year average levels’, or in fact by the May 25 OPEC/Non-OPEC Minister meeting.
While this suggests that an extension could be formalized and be endorsed by OPEC, one bank believes that such a move would not be prudent, as while it may boost near-term prices, oil could hit a “level at which we believe activity levels will ramp up in most regions, making these extended cuts self-defeating.” In other words, should OPEC succumb to pressure to achieve near-term gains, oil would ultimatly suffer a bigger drop over the longer term.
As Goldman’s Damien Courvalin writes overnight, his “assessment of oil fundamentals and the rationale behind the production cuts do not warrant such an extension barring either a sharp deceleration of demand growth or a sharp rebound in Libya/Nigeria production.”

This post was published at Zero Hedge on Mar 27, 2017.