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Top analyst sees OPEC deal contributing to ‘significant’ big oil earnings growth

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.


Fadel Gheit, senior energy strategist at Oppenheimer, said Thursday that he puts little stock in OPEC doing anything to bring supply and demand back into balance.

"OPEC has a history of saying things that they don't follow, promises broken and this is only one of them," he told CNBC's "Power Lunch."

That view was shared by a number of analysts on Thursday who identified numerous roadblocks to hammering out a final deal at OPEC's annual meeting Nov. 30.

What matters for energy stocks is the direction of oil prices, and it's too soon to tell whether the initial bounce on the OPEC news will continue in coming weeks, according to Gheit. U.S. crude settled at a one-month high near $48 a barrel on Thursday.

Ultimately, prices need to stabilize between $60 and $65 a barrel in order to make it broadly economical for producers to invest in enough new production to meet future demand, Gheit said.