Analysts have spent the days following the loose Algeria output cap deal predicting that prices will stay in the doldrums for the foreseeable future; but Pierre Andurand, the founder of Andurand Capital Management, thinks crude will reach $60 per barrel over the next three months and $70 next year due to the agreement.
Andurand wrote in an investor note this week that Saudi Arabia recognizes «a prolonged period of low prices is endangering longer term supplies; by forcing the market into a quicker rebalancing and pushing oil prices higher, they hope to avoid a large supply gap down the road.»
He wrote of the effect of low crude prices on the battered Saudi economy: «the removal of subsidies and tax increases have been widely unpopular» and «$65 per barrel would be needed to stop drawing on foreign exchange reserves.»
He added, «The Saudis want higher oil prices now and they will accommodate to make that happen.»
Andurand, who foresaw oil's plunge in 2014, predicts non-Organization of the Petroleum Exporting Countries (OPEC) crude supply outside of the U.S. will decline by 600,000 barrels per day (bpd) in 2016 and by 300,000 in 2017; and while rising prices could inspire a resurgence of U.S. shale production, they would have to be above $60 for a prolonged period to trigger activity.
As for the tentative deal reached by OPEC members earlier this month that many critics insist is unfeasible, Andurand told Reuters that nobody should get «lost in the details» of how the production limit will be achieved: «They spoke about a range of 32.5-33 million bpd, with Libya, Nigeria, and Iran allowed to go back up; if production from Libya goes up, say, then the other OPEC producers will have to cut production to make space. It takes off a large wild card from the oil markets for 2017.»
Taking the opposing view is Gaurav Sodhi, senior analyst at Intelligent Investor, who thinks details matter very much and doubts anything will be ratified by OPEC members.
He told CNBC, «I'm surprised [the deal] is being taken so seriously: [OPEC] is a dying organization with limited relevance in a world where shale is now the swing producer and the marginal setter of prices.»
Sodhi offered the persuasive argument that «OPEC says it will cut production but doesn't give any details of where the burden of supply cuts will come from; they can't even in fact agree on how much is being produced by each country.»
As for Russia's new-found enthusiasm for cooperating with the cartel, Sodhi said the former Soviet Union «has rarely in its history played a constructive role in supporting OPEC; in fact, it's mostly played the opposite.»
Barely a day before Sodhi made his remarks, Philip Verleger, president of PKVerleger, said oil will struggle to hold $50 in the fourth quarter of this year and that much of the reason for the current pain characterizing the oil market is that producers were misled about demand.