Regardless of whether OPEC manages to pull off a real deal on curbing production, the oil market is bound to recover in the second half next year, Ann-Louise Hittle, head of macro oils at Wood Mackenzie, told Russia’s TASS agency in an interview published on Thursday.
Even if OPEC and non-OPEC were to reach, and stick to, a deal on production cuts, the amounts would fall within the typical seasonal declines in the fourth quarter this year and in the first half next year, Hittle said.
Should a deal go through, “it would accelerate the rebalancing of supply and demand during late 2016 and 2017”, the analyst noted. A deal would imply a larger stock draw in the second half of next year.
“That would support prices above our current expectation for an annual average in 2017 of US$55 per barrel for Brent likely towards US$60 per barrel annual average,” she added.
The UK consultancy firm sees the price of Brent averaging US$50.35 per barrel in the fourth quarter this year. OPEC’s efforts to reach an agreement has already helped to support oil prices, but Wood Mackenzie had been expecting prices to stabilize in this current quarter, due to the “gradual rebalancing of supply and demand currently underway,” according to Hittle.
The analyst sees an OPEC deal “unworkable” at this point due to the exemptions some countries demand, because it would leave a few producers, such as Saudi Arabia, bearing the brunt of the production cuts.
In December of last year, Wood Mackenzie had predicted that the OPEC supply uncertainty would be the wild card for the oil market this year.
“A major uncertainty around the projected rebalancing of supply and demand during 2016 centers on OPEC and the actions of individual member nations,” WoodMac said back then.
More recently, Wood Mackenzie said that in the world of low oil prices, the biggest oil companies were scaling back their exploration budgets and would be seeking to grow via mergers and acquisitions rather than spending on drilling for new oil.