More important than numbers is the fact that OPEC and Russia are being sensitive and responsible about increasing production, Jonathan Barratt, CIO, AyersAlliance, tells ET Now.
Edited excerpts:
There are areas where OPEC has agreed but they have also disagreed I certain areas. Wasnt it a very vague kind of an agreement which they have announced over the weekend?
Post OPEC meet, we are all a bit confused just what was happening. Russia said there was about a million barrels a day increase in production. It was interesting to see that Russia actually came out and put a number on it. The interesting thing to me about what has happened was that the price of oil went up. Now, why did it go up as a result of an agreement to increase production is something that we are analysing at the moment. Also, we are going to see how it is going to spread through OPEC and who will actually be the ones to increase production. A lot of members have limited capacity to increase production. That may be why the market went higher on Friday. We really need to see more trading. We need to see when the UK and the US come in so that we can get a real depth as to what people feel about what has actually occurred as a result of that increase in production.
What would it do for crude prices? Can it meaningfully draw down crude levels from almost near $80?
Remember, OPEC had originally agreed to reduce supply by 1.8 million barrels per day. Effectively, they are going to increase production by 1 million barrels per day now. That means we are still looking at a deficit of 800,000 barrels at a time when we know the economies are absorbing more and more and we have got restricted capacity coming out of Venezuela.
The interesting fact is that the non-OPEC producers and in particular Russia came out and said they were going to increase supply and that they would be sensible and responsive about it. We need to see more in order to see stability in the prices and also prices coming down. The market wants to see more rigidity in the reduction of that supply. We are actually going to see more production come on line.
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