Thursday, September 29, 2016 1:04pm / Meristem Research
In the just concluded International Energy Summit on the 27th September 2016, OPEC finally agreed on an output freeze, the first successful attempt since 2008 in which the petroleum committee decided to cut output by c.750,000bpd from its current production of 33.24MMbpd to 32.50MMbpd
Each country is expected to make a decision on the production cut it is willing to absorb and this is to be communicated at the next formal OPEC meeting scheduled to hold in November 2016.
The Committee also agreed to give Nigeria, Iran and Libya an opportunity to produce at maximum levels in order to balance their production levels given the peculiar challenges these countries are facing. Post OPEC decision, an increase in oil price by c.5% to USD48.32pb at the close of market yesterday has been observed.
The outcome of this decision will lead to increase in oil prices which we further expect to bolster proceeds from crude oil production despite the reduced output. We do not believe this decision would result in a long term rally in prices, as this could incentivize the return of discouraged high-cost shale oil producers.
In addition, we anticipate that this decision could potentially drive positive sentiments in the equities market domestically, particularly within the oil and gas sector in the short to medium-term as investors are eager to key in their interest in the sector.
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