Stifel’s Bannister: OPEC, Russia Oil Cuts to Boost Prices 40 Percent

November 26, 2014

Oil will climb by 40 percent in the next six months as the world’s major energy exporters agree this week to cut crude production, a Wall Street analyst said.

Barry Bannister, head strategist at Stifel Nicolaus & Co., expects the Organization of the Petroleum Exporting Countries will agree to cut output by about 1 million barrels a day. In addition, he expects Russia to reduce production by 500,000 barrels a day to support oil prices. The cuts would lift the price of Brent crude to $109 a barrel by May from about $78 currently.

Oil-exporting countries will face economic and financial repercussions if they can’t agree on steps to lift prices, Bannister said.

“The downside risk if OPEC disappoints is just too great for all parties to ignore,” he said in a Nov. 26 report. “Among oil producers, there are no permanent friends or enemies, only permanent interests.”

Oil ministers from the 12 OPEC nations meet on Thursday to discuss quotas after prices dropped more than 30 percent since the summer to four-year lows. The U.S. has boosted energy production to about 3 million barrels a day, the highest since the 1980s, while demand has softened with a weakening global economy.

OPEC has an official output target of 30 million barrels a day, while 10.5 million barrels are produced by Russia, a non-OPEC country. The cartel has exceeded its existing ceiling of 30 million barrels a day, producing around 30.7 million barrels a day in September, according to the International Energy Agency.

Speculation has intensified over OPEC’s moves, with CNNMoney reporting that OPEC is unlikely to cut production because Saudi Arabia is among the Middle Eastern countries with strong cash reserves, reducing any pressure to scale back.

Saudi Arabia is “essentially not willing to carry the oil market anymore,” said Fereidun Fesharaki, chairman of FACTS Global Energy, according to the website. “And they are telling everyone else, they have to pay their fair share and what they do is reasonable, normal and very logical.”