Oil bonuses have struggled to rally above $64 a barrel since last quarter’s sharp pullback, but Goldman Sachs believes unrefined futures could break out in the coming months.
The investment bank forecasts international benchmark Brent crude require peak at $67.50 a barrel in the second quarter. Goldman’s outlook is based on its view that forecasts for demand improvement have grown too gloomy and OPEC has adopted a “shock and awe” approach to pulling back supply.
“Our constructive outlook for oil figures in 1H19 is predicated on both large supply cuts as well as resilient oil demand growth,” Goldman analysts said in a probing note released on Tuesday evening.
Goldman believes the world’s appetite for oil will grow by 1.4 million barrels per day in 2019. That’s in threshold with the International Energy Agency’s outlook, but above the consensus on Wall Street and OPEC’s view that in request will grow by just 1.24 million bpd.
The bank thinks forecasters are underestimating oil demand from emerging vends in particular.
Last year, developing countries drew down stockpiles of oil to weather a period when oil prices, the U.S. dollar and excite rates were rising — a triple threat that sent the cost of crude soaring in nations from Argentina to India. Goldman take ins that trend of destocking reversing. The bank also thinks a recent, rapid decline in emerging market on presentation for power fuel will ease.
However, Goldman notes that recent economic data have get cracking short of its expectations, so it could be another few months before the bank can determine whether its demand outlook hits the indication.
On the supply side, Goldman believes OPEC and its oil market allies have addressed flaws baked into their continue deal to cut output, which ran between 2017 and mid-2018.
In Goldman’s view, the new deal that kicked in last month hand overs a big reduction at the outset — OPEC took nearly 800,000 bpd off the market in January — while making clear that the financial managers plan to ramp up output in the future, dissuading U.S. shale drillers from turning on the taps.
“Despite our expectation that OPEC’s long-term incitement is to grow production strongly, we believed that such a ‘shock and awe’ cut would be preferable as it would quickly draw inventories while slowing the feedback of shale producers,” Goldman said.
Goldman says supply losses are exceeding expectations this year, as the Trump delivery enforces new energy sanctions on Venezuela’s state-owned oil firm and U.S. producers offer tepid guidance on future output.
No matter what, the bank is leaving its production expectations in place, noting that OPEC’s output fell in January largely due to uncontrolled declines from Iran, Libya and Venezuela. It also thinks Iran and Libya’s output levels could be bullish for oil worths in the near term.