Barclays sees extension of OPEC-led deal at November 30 meeting

Barclays on Monday said that while it expects a six- or nine-month extension of an OPEC-led deal to curb oil output during a meeting on Nov. 30, the level of production cuts would be more significant than the duration.

The bank forecast Brent to remain above $60 per barrel in the fourth quarter of 2017, and fall to $55 in 2018. It stood at around $63.80 on Monday.

“Whether or not the countries extend and the duration of the deal are not the relevant questions in our view. We believe the level of the cut is what really matters, and we assign a low likelihood to this detail being announced on November 30,” analysts at the bank said in a note.

Brent crude oil futures have been stronger than WTI due to an effort by the Organization of the Petroleum Exporting Countries (OPEC) and a group of other producers, including Russia, to withhold 1.8 million bpd of output since January.

“If the meeting concludes as the market expects, prices could experience a short-term selloff, but the technicals and fundamentals will likely remain constructive,” the bank said.

The deal to cut output expires in March 2018, but OPEC will meet on Nov. 30 to discuss its policy.

“The sustainability of the deal depends on how much longer Saudi Arabia, Russia, Iran and Kuwait are willing to sacrifice market share in the pursuit of revenue and market stability,” analysts at the bank said in a note.

The bank said it did not expect the prevailing “geopolitical tensions” to derail oil diplomacy over the near-term.

A purge this month of Saudi Arabia’s leadership by Crown Prince Mohammed bin Salman is one of the key factors raising concerns about political stability of the region’s largest oil producer.

Other regional concerns to investors include war in Yemen and growing tensions between Saudi Arabia and Iran.

Assuming that current levels of production are sustained, the global oil market would flip into a slight deficit from a slight surplus, Barclays said.

Reduction of output from OPEC and non-OPEC participants of the deal by a further 550,000 barrels per day could lower inventories by 153 million barrels during the Q2-Q4, 2018 period, it added.

“But in the $60-70 per barrel range, U.S. tight oil, Chinese import levels, and global oil demand growth will not stand still and would likely cause a hangover for the oil market.”