OPEC's agreement to cut crude oil production may be roughly around 1.13 million barrels per day, says Vandana Hari of Vanda Insights. If OPEC is to also negotiate with non-OPEC crude producers like Russia to cut production, the total cuts could be around 1.80 million barrels per day, which could stabilise the crude prices in the long-term.
The prices may maintain between a wide range of USD 50-60 per barrel of crude of the agreement is implemented, which happens in January next year.
For now she says the production remains to stay at an all time high.
Below is the transcript of Vandana Hari’s interview to Manisha Gupta on CNBC-TV18.
Q: What have you read into the Organisation of Petroleum Exporting Countries (OPEC) output cut and what is your sense on how are we preparing or looking at the world now of in the first half of 2017?
A: I see it as a quite credible agreement, quite significant cut. Credible because they managed to do more or less an accessible distribution. Libya and Nigeria were excluded exactly as was expected. Saudi, it is diplomatic coup for them. They managed to get Iran and Iraq back to the table and negotiating on their terms rather than what they were demanding for. So overall, so far so good I would say. Delivering a cut of according to my calculations more like 1.13 million barrels per day. But it is substantial and it does give them the moral authority now to go to Russia and some of the other non-OPEC producers to demand that they cut back as well. And if indeed, that comes to pass as well, we will know on December 9. Then 1.8 million barrels per day, that does not mean it will actually be cut. We can talk about that separately but at least on paper, that looks like just the right amount of that is needed to rebalance the markets in the first half of 2017.
Q: Would you say that this output cut, all of that has been factored into the prices? What kind of a price movement are we now looking at?
A: The market was expecting basically, it is a wide range, but anywhere between USD 50 and USD 60 per barrel if OPEC delivers a credible reduction agreement which is exactly, therefore you see the validation and the prices starting last night and Brent. I am a little bit intrigues by the fact that Brent has not jumped. If you remember, in the post Algiers rally, Brent had climbed to as high as USD 53 per barrel. But now since last night’s agreement, it has been more like USD 51-52 per barrel. So, I am just wondering how long the honeymoon period is going to last and whether the market is going to start turning its attention to the fundamentals to OPEC walking the talk now. It is too early of course, because the agreement takes effect only in January. So, it will not be until the end of January or February shipments that the market will be in a position to judge when and how much they are delivering.