Opec oil output freeze ‘would be as self-defeating’, says Goldman Sachs

Pumping Jacks at the Chevron section of the Kern River Oil Field near Bakersfield, California. The US oil rig count is up 28 per cent since May. AFP

Opec and some producers from outside the group may agree to freeze output during informal talks next month, which could prove “self-defeating” because it would benefit other suppliers, according to Goldman Sachs Group.

A deal would show signs of cooperation from Saudi Arabia’s new energy minister after six failed attempts, Goldman analysts including Damien Courvalin said in a report dated August 22.

An output cap would likely prove counter productive for Opec if it led to further price gains and an increase in supply from other producers, Goldman said.

“Thawing relationships between parties in conflict in areas of disrupted production would be more relevant to the oil rebalancing than an Opec freeze, which would leave production at record highs,” Goldman said. “A production freeze would also likely prove self-defeating if it succeeded in supporting oil prices further, with the US oil rig count up 28 per cent since May.”

Oil climbed more than 20 per cent to enter a bull market on Thursday amid speculation talks in September may lead to action to stabilise the market.

Opec is on course to agree to a freeze because its biggest members are pumping flat-out, according to Chakib Khelil, former president of the group. A similar plan was proposed in February, but a meeting in April ended with no accord.

Saudi Arabia and Iran continue to focus on market share and appear unlikely to unilaterally accept a freeze, Goldman said.

Supply will remain the driver for oil prices in coming weeks, with no evidence demand growth is weakening, the bank said. Uncertainty about the sustainability of supply gains from Iraq, Libya and Nigeria and the magnitude of these improvements “remain large”.

Goldman maintained its $45 a barrel to $50 a barrel forecast through next summer and reiterated that the price and fundamental recovery remain fragile.

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