Oil: OPEC returns, but be wary - Natixis

Research Team at Natixis, believes that the outcome from the OPEC meeting is positive even though some gaps remain and we will need to wait until the OPEC nonOPEC meeting to bridge some of those gaps.

Key Quotes

“Whilst markets grow bullish on the back of this news, we might also see some correction in prices, especially if the effective cut is not as high as announced by OPEC and non-OPEC. This will become visible in late January or February. At the same time, even if the effective cuts were not exactly similar to the ones announced by OPEC alone or together with non-OPEC, we think that the news today will provide a tailwind for oil prices to take them through the most fundamentally weak quarter, which is 2017Q1 in our view. Once we are past that, markets might start to look beyond the first quarter and we see markets trending towards a natural equilibrium thereafter anyway, even without the intervention.”

“An oil price rally on the back of this meeting will nevertheless encourage supply demand auto-correction demand on the sustainability of the rally. On the supply side, we expect US producers, in particular, to take advantage of this rally (at different levels; USD50/bbl for some and USD60/bbl for others, on a sliding scale) to hedge and hence return more rigs on line. Additionally, a rapid oil price rally would also impact demand growth. This may alter the supply demand balances, but we still expect markets to trends closer to equilibrium and witness stock withdrawals in 2017.”