OPEC's plan to limit oil output could boost crude prices next year and help embattled energy companies return to earnings growth, Institutional Investor's top-ranked integrated oil analyst said Thursday.
Oil majors like Exxon Mobil, Chevron and Royal Dutch Shell have reported declining profits in recent quarters as the two-year price rout cuts into earnings. Meanwhile, the overall energy sector has weighed on S&P 500 earnings, resulting in a six-quarter revenue recession.
Evercore ISI's head of energy research, Doug Terreson, said the understanding reached by OPEC on Wednesday to cut production by 200,000 to 700,000 barrels a day has meaningful potential to positively impact crude prices, but cautioned it should not be confused with a firm agreement.
"The issue is that the devil is in the details," he told CNBC's "Fast Money: Halftime Report." "They haven't yet determined production allocations, the direction of production response, the monitoring and enforcement mechanism, and these are the same hurdles and the reasons why OPEC has not had a functional supply arrangement since 2008."
That said, Terreson believes OPEC members are more motivated than ever to prop up prices because the downturn has produced budget deficits and economic crisis for the cartel's members. If OPEC reaches a deal in November, the market can more quickly burn through huge crude stockpiles, and oil prices may recover to $55 to $60 in 2017, he said.
Terreson said a potential deal would come as energy companies persist in reducing their costs and are displaying better capital discipline.
"If this continues to play out in the way that it has so far, we're going to have pretty significant earnings growth in my category next year, and that's the reason that we're still positive on the big oils," he said.