PETALING JAYA: Crude oil prices will rally sooner and higher than expected as demand recovery outpaces supply from Opec+, according to Goldman Sachs Group Inc.
The bank in its recent note raised its forecast on Brent crude oil by US$10 a barrel (RM40.43) to US$70 in the second quarter and US$75 in the following quarter as it expected that consumption will return to pre-Covid levels by July.
“We now forecast that oil prices will rally sooner and higher, driven by lower expected inventories and higher marginal costs – at least in the short run – to restart upstream activity, ” Goldman said.
“We further believe that this additional rally will be supported by the current repositioning for a reflationary environment with investors turning to oil, buying a lagging real asset that benefits from a stimulus-driven recovery and has demonstrated an unmatched ability to hedge against inflation shocks, ” it added.
Brent crude oil has gained more than 27% this year after a pledge by Saudi Arabia to further cut production.
Yesterday, the international benchmark shot up to more than US$66 per barrel, the highest since November 2018.
Next week, Saudi Arabia and Russia will be meeting again at the Organisation of Petroleum Exporting Countries and its allies (Opec+) that will decide the fate of the oil market.
Goldman said supply will keep lagging behind demand as it expects that Opec+ will fall behind the market rebalancing, especially as the pace of global drawdowns of stockpiles has accelerated.
“There are still no signs of higher activity among most non-Opec+ producers outside of North America, creating risks that output falls 900,000 barrels a day short of our forecasts over the coming year.
“The US earnings season confirms that big explorers and producers, the key drivers of US shale output, remain focused on returning cash to shareholders, ” it added.
Goldman said even with the 4.4 million barrels per day increase in Opec+ output by July – which is well above the current 2021 Opec+ agreement – would still leave the market in a 1.35 million barrels per day deficit.
Overall, the bank expected oil price to be at US$70 per barrel in the fourth quarter of this year and in 2022, given the potential for higher supply by then.
“Although our conviction on the timing and magnitude of such a reversal in prices is low, leaving us focused on the clearer short-term case for higher oil prices, ” it said.
It was reported that Morgan Stanley expects Brent crude prices to climb to US$70 per barrel in the third quarter on “signs of a much improved market” including prospects of improving demand.
“The stars have aligned for the oil market even faster than expected, ” the bank said.
It pointed out that “new Covid-19 cases are falling fast globally, mobility statistics are bottoming out and are starting to improve, and in non-Organisation for Economic Co-operation and Development (OECD) countries, refineries are already running as hard as before Covid-19.”
However, the US Energy Information Administration in a report earlier this month warned that the price of oil could fall back to US$50.3 per barrel later this year because of the rising production in the US.