Members of the Organization of the Petroleum Exporting Countries (OPEC) failed to reach an agreement on limiting the supply of oil last week, not only causing a short-lived sell-off but posing a long-term risk to oil prices, says Pimco.
According to Pimco portfolio manager Greg Sharenow, OPEC members did not come to an agreement following their meeting in Doha last week, rejecting to “freeze” output.
Mr Sharenow noted that negotiations broke down after OPEC members, particularly Saudi Arabia, took issue with Iran’s absence from the meeting.
“The failure in Doha has renewed comments about OPEC’s demise,” he said.
Saxo Bank head of commodity strategy, Ole Hanse, seemingly agreed, indicating that the failure on an agreement "left the market in disarray".
Crude oil was down 5 per cent on the day following the meeting in Doha.
Moreover, Mr Hanse said an additional and significant concern relates to Saudi Arabia's admission that it could increase production by one million barrels if there was relevant demand.
“There [are] some worries that there could be another supply war going on within OPEC. If that happens then oil could easily revisit the 30 [dollar per barrel] level," he said.
Mr Hanse said that although clear risks have emerged off the back of OPEC's meeting, investors can view the "disarray" as an opportunity.
“The market is now back under pressure but it’s not a big game changer in the market because the rebalancing is currently ongoing… and as long as that continues to happen then investors with a longer term horizon will view weaker prices as a buying opportunity,” he said.
Mr Sharenow added that OPEC now needs to focus on creating an investment environment that supports an increase in output.
“By doing so, OPEC members would increase investment dollars to replace lost revenue from oil sales and create a future income stream once investment comes to fruition,” he said.
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