Wall Street Not Surprised At Lack Of Weekend Agreement In Doha

Wall Street isn't surprised at the lack of weekend deal in Doha that would have froze oil production at January levels. However, the Street views the lack of deal is a bearish sign for oil and could make the prices further volatile.

Oil prices have been rallying in the recent past, in part driven by expectations of production cut from a Doha deal. However, the lack of deal have resulted in a drop in oil prices.

Bearish For Prices

"On its own, we view this outcome as bearish for oil prices given consensus expectations for a "soft guidance" freeze at January production levels. But this lack of an agreement does not imply that OPEC production will recover in the short-term, as the year-to date stabilization owes to ongoing disruptions and maintenance rather than coordination," Goldman analyst Damien Courvalin wrote in a note.

Related Link: Doha Meeting Leads To No Deal; Oil Prices Plunge, But Recover

Though the deal is a bit of negative crude prices, HSBC's Gordon Gray sees the market rebalancing is drawing near and expect prices to trend higher as the market tightens in the second half of the year.

Gordon expects Brent price of $45/b this year, rising to $60/b next year and $75/b in 2018.

RBC's commodity strategist Helima Croft said "With eyes turning to the next meeting, we struggle to see how the outcome will be any different unless Saudi Arabia or Iran has a change of heart."

"Given the lack of control over messaging, the initial post-Doha reaction will likely see an initial leg lower, but a sentiment-driven pullback should find support near the mid $30/bbl range (if prices plunge that far) given an otherwise improving market balance," Croft added.

Potential Support

Meanwhile, there are expectations that the weekend strike by Kuwait's oil workers should provide some support to crude prices as the strike reduced the country's output significantly.

Commenting on the strike, Croft said, "We note that the oil worker strike in Kuwait could have a significant impact depending on its duration."

However, Courvalin says "this strike may be short lived," as it is a labor dispute and not a disruption, and the oil fundamentals are improving.

Stifel analyst Robert McCarthy said Emerson Electric Co. EMR, General Electric Company GE and Honeywell International Inc. HON have the most exposure to oil and gas revenue in his coverage.

"Under our EE/MI Oil and Gas Stress Test, we similarly see the most risk of potential EPS cuts with Emerson ( ~$0.23 or 7.4% risk to our $3.05 FY16 EPS estimate), GE (~$0.05 or 3.5% risk to our $1.50 2016 EPS estimate), and Honeywell (~$0.18 or 2.8% to our $6.60 2016 EPS estimate)," McCarthy noted.

Crude oil was currently down 0.77 percent at $41.39.

Posted In: Damien CourvalinDohaGoldman SachsGordon GrayHSBCRBCAnalyst ColorNewsCommoditiesEventsMarketsAnalyst Ratings