At the end of September 2016, OPEC shocked the market when the cartel agreed for the first time in eight years regarding a coordinated production cut. This is the beginning of a new era. Nordea Bank noted that OPEC is moving back to the role of a cartel – that is actively managing the market by adjusting production to steady prices at a higher level.

Even if OPEC has managed to agree to reduce oil production to 32.5-33m b/d, it did not mention who would be trimming output and when. Saudi Arabia is expected to possibly take most of the cut; however, it is uncertain if Iran would be excused from this cut round and if the cartel would attempt to ask for support from Russia to cut output, stated Nordea Bank.

OPEC might provide additional details regarding the agreement during the scheduled meeting on 30 November in Vienna. However, there is a definite risk that OPEC might not be able to agree regarding large enough reductions by all the members or fail to agree totally in November. A weak deal or a no deal during the November meeting might set off a decline in oil prices, according to Nordea Bank.

Subdued outlook regarding future oil demand growth, particularly from India and China, and slow tightening process in the market, mainly triggered the cartel’s decision to cut production now. The concerns of cartel that prices of oil might stay “lower for longer” were evident from its statement published post the Algeria meeting.

“We will keep our oil prices forecast unchanged at USD 55/barrel for Q4 as the outlook for the oil price without a cut agreement would look somewhat lower than this”, added Nordea Bank.

The agreement is likely to push prices more than the USD 45-50/b range the Brent price has been trading since April, noted Nordea Bank.