OPECdecided Sept. 28 toset a target for oil production by its members at a level that is slightlybelow current output.
Atits 170th extraordinary meeting in Algiers, Algeria, the cartel said membersopted for an OPEC-14 production target ranging between 32.5 MMbbl/d and 33.0MMbbl/d in order to accelerate the ongoing drawdown of the stock overhang andbring forward a rebalancing of supply and demand.
OPECproduced 33.24 MMbbl/d in August, according to its "Monthly Oil MarketReport" published Sept. 12. A cut would be the first since 2008.Production also remains considerably abovethe levels in place during its meeting late last year.
"TheConference took into account current market conditions and immediate prospectsand concluded that it is not advisable to ignore the potential risk that thepresent stock overhang may continue to weighnegatively well into the future, with a worsening impact onproducers, consumers and the industry," the group said in a statement.
"Thecartel was unable to deliver on how and when it plans to cut production to thenew target level, leaving us skeptical that a deal can be made and executed,"Brian Gibbons, senior oil and gas analyst at CreditSights, said in a note. "Inour view, this is classic, old-school OPEC — talk the price higher and keep themarket guessing for as long as possible in order to keep price sentiment biasedto the upside."
Gibbonssaid that he is skeptical of OPEC's ability to deliver on a production cut andgive up market share gains it has made in the last two years.
Sentimentwas similar at Fitch Ratings, where analysts said the announcement supportstheir view of a price recovery, but does not make a strong rebound materiallymore likely.
"Ourlong-term expectations for both Brent and WTI of $65/bbl reflect our view onthe long-run marginal cost of supply," Fitch noted.
Novemberoil futures advanced $2.38/bbl on the news and settled at $47.05/bbl on Sept.28.
Someof the proposed declines in OPEC supply would happen naturally, according toanalysts at Morgan Stanley.
"SaudiArabia reduces production seasonally every year, and the proposed cut for thekingdom is only slightly larger than the seasonal decline from 2015. OPEC alsohas a history of out-producing quotas," the analysts said.
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