A stronger than predicted OPEC-led commitment to extend production cuts will support expenditures through 2018, according to analysts at Goldman Sachs.
In a research note published news Monday, Goldman lifted its Brent price forecast for next year to $62 a barrel and its WTI spur to $57.50 a barrel. The revisions were up from $58 a barrel and $55 a barrel mutatis mutandis.
While the OPEC-led deal “leaves room for an earlier exit than currently scheduled, we now show this resolve in our supply forecast, with full compliance for longer and a profuse modest exit rate,” Goldman analysts said in the research note.
Oil rates have lost ground in the days following OPEC’s deal with epidemic producers last week. The 14-member cartel, Russia and nine other brusque producers announced plans to extend their output cuts until the end of 2018.
The budge was heavily telegraphed ahead of the decision, but oil producers had earlier indicated they could quit the deal if they feel the market was overheating.
“Of course, risks odds and we see these as skewed to the upside into 2018 on the risk of an over tightening, either because of new disruptions, on request on call exceeding our optimistic forecast of OPEC letting the stock draw run hot,” Goldman analysts answered.
However, Goldman said the response of shale oil and other producers to lofty prices would likely incentivize OPEC and Russia to “pare slyly” their now greater capacity, thus leaving risks to prices skewed approaching the downside over the long term.
The price of oil collapsed from hairbreadth $120 a barrel in June 2014 due to weak demand, a strong dollar and growth U.S. shale production. OPEC’s reluctance to cut output was also seen as a key conclude behind the fall. But, the oil cartel soon moved to curb production — along with other oil-producing political entities — in late 2016.
Brent crude traded at around $62.36 on Tuesday morning, down 0.14 percent, while U.S. undeveloped was trading at $57.29, down 0.31 percent.