NEW YORK (REUTERS) - Oil market analysts on Thursday (Jan 29) largely dismissed the possibility of coordinated production cuts by Opec and Russia, saying the market's early positive reaction was based on false hope.
"Talk of an Opec cut is likely no more than an attempt to shift market sentiment. We remain skeptical about a change," said Michael D Cohen, commodities analyst at Barclays in New York in a note to clients headlined "False Hope".
Oil prices rose more than 5 per cent on Thursday on reports of Russian Energy Minister Alexander Novak's comments suggesting Saudi Arabia had proposed output cuts of up to 5 per cent to lift oil prices. The market then retreated after media outlets cited Gulf sources saying there were no plans to implement such cuts.
"Our read on this event is that it is merely an extension of the Russian position that they would consider working with Opec to coordinate production cuts - rather than an indication that such proposals are actually close to becoming a reality," said Vikas Dwivedi, analyst at Macquarie Group in Houston, in a report entitled "Much Ado About Nothing."
Such a cohesive stance on the often difficult-to-read oil market is unusual. Even on the slim chance the cuts came to fruition, a 5 per cent output cut from Russia and Opec would equal about 2 million barrels per day. Analysts said this would just be a drop in the flood of crude that has glutted the global market, causing a price slide.
"If you get the cuts, then it would be minus 2 million from those guys, but plus 1 million from Iran," said Michael Wittner at Societe Generale. "I don't think that flies."
A rising tide of crude has unbalanced the global market, causing prices to fall more than 60 per cent since mid-2014 as production from US shale and deepwater projects has overwhelmed demand.
Analysts from Barclays, Macquarie, and other financial institutions felt the likelihood of such cuts was low.
"I think chances are pretty slim that there could be a major output cut," said Michael Wittner, analyst at Societe Generale in New York.
Saudi Arabia has previously said it will not cut production without coordination from other large producers including Iraq, Iran and Russia. Mr Wittner said agreement from all four producers is unlikely.
"There seems to be a softening of the position by Russia and Iraq, so they may be willing to entertain the notion, but Iran seems to be holding to their line that they want to increase as they come back from sanctions," he said.
Notable too, analysts said, is who was absent from the cast of characters involved in the discussions and floating hints of cooperation.
So far, reports have cited Mr Novak and not Rosneft CEO Igor Sechin or President Vladimir Putin. "Sechin is in Putin's inner circle, and has thus far taken the lead in rebuffing calls for a coordinated production cut," Helima Croft, global head of commodity strategy at RBC Capital Markets said in a report on Thursday.