“Benchmark Brent crude prices bounced more than 6% intraday following reports of the deal, though the details will entirely determine the efficacy of any collective cut,” said Rory Johnston, Commodity Economist at Scotiabank. “All else equal, this is a bullish development for the oil market. Perceptions of OPEC cohesion took a hit after similar talks in April failed and simply getting members to sign onto an in-principle agreement — the cartel’s first since 2008 — should be viewed as an achievement.
“We’re talking about the possibility of relatively small cuts with the potential that further additions from ‘exempted’ members overwhelm reductions made elsewhere in the cartel. That said, any reduction of OPEC’s expected production path puts upward pressure on our current WTI price forecast, which at $45/$55/bbl in 2016/17 was beginning to feel a bit high given the mild deterioration of market fundamentals prior to the OPEC announcement. Any near-term upward price adjustment will also bolster the fortunes of non-OPEC producers and the U.S. shale patch may return to positive growth next year.”