×
Newsmax TV & Webwww.newsmax.comFREE - In Google Play
VIEW
×
Newsmax TV & Webwww.newsmax.comFREE - On the App Store
VIEW
Tags: Goldman | Sachs | OPEC | Federal | Reserve

Goldman Sachs: OPEC Should Be More Like the Federal Reserve

Goldman Sachs: OPEC Should Be More Like the Federal Reserve
(iStock)

Thursday, 01 June 2017 09:08 AM EDT

OPEC should learn from the U.S. Federal Reserve and do more to explain its long-term oil-output policies instead of just focusing on short-term goals, according to Goldman Sachs Group Inc.

The need for such forward guidance, which has long been a staple of comments from central bankers, should be evident to the oil producers’ group after prices slumped last week following its ministerial meeting in Vienna, said Jeffrey Currie, the bank’s head of commodities research.

“OPEC didn’t provide the market with an exit strategy,” Currie said in an interview in St Petersburg, Russia on Wednesday. “While they discussed the near-term strategy of reducing and normalizing inventories, they failed to be very aggressive in explaining their exit strategy.”

The Organization of Petroleum Exporting Countries and non-members including Russia agreed last week to prolong their 1.8 million-barrel-a-day output reduction for another nine months beyond June as the cuts take longer than expected to reduce global fuel stockpiles. Brent crude, the international benchmark, fell 4.6 percent on the day of the meeting amid concerns about whether the curbs would prove effective and how they would be phased out after March 2018.

One reason for the skepticism about OPEC’s effectiveness has been the resurgence of shale oil in the U.S., which threatens to blunt the impact of the group’s cuts. A clearer signal that the group intends to expand its market share once the inventory surplus is eliminated could also address this problem, said Currie.

“Time is not on their side as shale production will respond,” he said. “A stated market-share target would help reduce forward prices and discourage future investment as it would be viewed as a credible threat.”

U.S. crude production has already risen by 550,000 barrels a day this year and drillers are still increasing the number of active rigs, signaling further output gains may be coming. That wipes out almost a third of the supply reduction from OPEC and its allies and the output surge could double by year-end, consultant IHS Markit Ltd. told the group at a meeting last month.

OPEC will probably need to discuss its exit strategy soon and could look at the recent history of the Fed for ways to improve its messaging, Currie said.

“At the beginning of quantitative easing, central banks also struggled with how to communicate forward guidance on the exit strategy,” he said. “Over time they got much better at such communications.”

© Copyright 2023 Bloomberg News. All rights reserved.


StreetTalk
Oil producers need to show they have an exit strategy for cuts; Long-term guidance could reduce threat from rival producers
Goldman, Sachs, OPEC, Federal, Reserve
400
2017-08-01
Thursday, 01 June 2017 09:08 AM
Newsmax Media, Inc.

Sign up for Newsmax’s Daily Newsletter

Receive breaking news and original analysis - sent right to your inbox.

(Optional for Local News)
Privacy: We never share your email address.
Join the Newsmax Community
Read and Post Comments
Please review Community Guidelines before posting a comment.
 
Get Newsmax Text Alerts
TOP

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved
NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved