Fitch Ratings Agency on Thursday said that OPEC’s oil production target announced this week signals the potential for greater co-ordination among its members, but the target itself is largely symbolic. The announcement supports our view that oil prices will continue their recovery, but does not make a strong rebound materially more likely, said Fitch.
OPEC surprised the market with an agreement to reduce the bloc’s combined output to 32.5mn barrels per day, a reduction of about 750,000 barrels per day. It was an exceptional decision and the first OPEC deal in eight years.
A high-level committee will recommend member country production levels and there will be “serious and constructive dialogue” with non-member producers on how to stabilize the oil market. OPEC will consider the outcomes at its 30 November meeting in Vienna.
The deal to cut output reduces downside risk to oil prices and will see continuation of stabilization and recovery which began since the beginning of the year. More detailed discussions over the next two months will test the willingness of OPEC members to co-operate to reduce production.
With too many details still left unresolved, markets turned skeptical as to the effectiveness of the deal. OPEC’s announcement pushed oil prices higher, but they have since retraced some of their gains, and are below the year-to-date peak seen in early summer.