North Sea investors will need more convincing Opec’s output reduction deal is robust before loosening their purse strings, a prominent petro-economist said today.
Aberdeen University’s Professor Alex Kemp said the agreement was unlikely to have a big effect on oil prices until more details are firmed up.
The Organization of Petroleum Exporting Countries agreed to cut production to a range of 32.5million to 33million barrels a day − a drop of about 700,000 barrels − which would mean a first reduction in eight years.
Brent crude prices went up by more than 6% to about $49 a barrel first thing this morning, before edging down 0.3% to $48.55.
Despite the early gains, Prof Kemp said the agreement leaves too much to the imagination for a significant upturn in crude prices, and the oil industry’s fortunes, to take place.
He said: “Although there is a definite change in thinking by leading producers within Opec, oil traders will want to be satisfied that any cut to output is implemented, but there are no details on that yet.
“To be convinced, they’d want to know who’s going to cut production and what are the quotas for individual producers? That could come in November.
“It has been some years since Opec had individual quotas. Without those, traders may be a little suspicious about whether the deal will hold.
“Iran still appears to be anxious to get freedom to increase production to the levels it had before sanctions were imposed on it, so that leaves uncertainty about what will happen to the agreement.
“So what will be the impact on the North Sea? North Sea investors will also want to be convinced that this change in attitude is translated into quotas.”