Oil: Despite a fragile OPEC deal, prices likely to rise further in 2017 – Danske Bank

After months of discussions and hand wringing, OPEC members struck a deal on Wednesday to cut production to 32.5mb/d effective from 1 January 2017, as noted by the Research Team at Danske Bank.

Key Quotes

“The deal is contingent on non-OPEC members cutting their production by 600kb/d. According to OPEC, Russia has already committed to delivering 300kb/d in cuts. Another meeting is scheduled for next Friday to get the non-OPEC producers on board. Although reaching an agreement is positive, we are sceptical about the implementation of the deal, which may create a downward correction in oil prices near term.”

“In 2017, we think that oil prices should be supported by the global recovery and reflation, notably in the US, which is the world’s leading oil consumer. In addition, an eventual weakening of the USD would also support a higher oil price. Hence, we see oil prices rising to USD58/bl in Q4 17. Metal prices more should also continue to benefit broadly from the global recovery and infrastructure spending in the US.”