Saudi, UAE spat unlikely to result in breakdown of OPEC+ discipline, Morgan Stanley says
OPEC+'s failure to reach an agreement on raising production two days before is unlikely to herald the start of a price war between its members, analysts at Morgan Stanley said - but there were medium-term risks.
Yes, keeping the production quotas of the group's member countries unchanged now would restrict supply and buoy prices in the short-term, they conceded.
That was especially important because the oil market had already been undersupplied in recent months to the tune of 2.0m barrels a day and demand was expected to jump by 3.0m b/d between June and December.
Hence, global oil inventories were being depleted at a quick pace.
However, over the medium-term, the group of producer countries was sitting on top of approximately 6.2m barrels a day of spare capacity, if one included the Russian Federation but left out Iran, Morgan Stanley added.
So if the current stand-off between those countries that wanted to boost output further and those who didn't continued, that might see some of them break their quotas, eventually leading to a race to gain market share that drives prices lower.
"The question however, is whether that latter scenario is really so likely? The consequences of letting that scenario play out are not to be taken lightly. There have been prior periods where lack of agreement eventually led to a full breakdown in cooperation and sharp increases in production," they said.
"In those cases, Saudi Arabia itself has often added to significantly to supply, with the eventual aim of driving members back to the negotiating table via a period of (very) low oil prices."
Nonetheless, for Morgan Stanley the most likely scenario was one where OPEC+, including the UAE, ended up going ahead with an increase in combined OPEC+ output between August to December of 2.0m b/d, which would suffice to keep crude oil prices in a range of $75-80 a barrel.