Goldman Sachs reduced its December forecast for global benchmark crude prices by almost 10% this week, partly attributing the move to higher-than-expected supplies from Iran and Russia.
In a note dated Sunday, Goldman cut its December 2023 Brent oil forecast to $86 a barrel from $95, citing “significant supply beats from Iran and Russia that have “driven speculative positions to near record-lows.” It also lowered its 2023 Brent forecast to $82 from $88 and its 2024 forecast to $91 from $99.
The move marks a change from Goldman’s bullish view on prices following the unexpected output cut by major oil producers announced in early April. Following that announcement, Goldman lifted its December 2023 Brent price forecast to $95 from $90 a barrel.
Analysts at Goldman, including senior energy strategist Callum Bruce, pointed out that oil prices have declined by $10 a barrel over the past two months, even though Saudi Arabia announced early this month that it will deliver an additional, extendable production cut in July.
Prices for global benchmark Brent oil had climbed shortly after the Saudi announcement on June 4, but posted a 1.8% weekly loss for the week ended June 9.
In Monday dealings, the front-month August Brent contract
BRN00,
BRNQ23,
traded at $72.25 a barrel on ICE Futures Europe, down 3.4%. U.S. benchmark West Texas Intermediate crude for July delivery
CL.1,
CLN23,
also declined by 4% to $67.40 on the New York Mercantile Exchange.
“Supply beats drive the bulk of the softening in this update, the Goldman analysts said, as they raised their second half of 2023 to 2024 global supply forecast, excluding core OPEC, by around 0.8 million barrels a day.
Following “large beats in sanctioned economies” Goldman lifted its 2024 supply for Russia, Iran and Venezuela by 0.4 million, 0.35 million and 0.05 million barrels per day, respectively.
“In the context of constraints on supply growth elsewhere, the fight against inflation may have been associated with changes in sanctions enforcement, and previously constrained productive capacity has been unlocked,” the Goldman analysts said.
The revision to the oil-price forecasts repeats the story of last year, they said. China lockdowns and recession fears have also weighed on prices, and they estimate that “depressed positioning and supply beats,” including the record U.S. Strategic Petroleum Reserve release of oil, explain 10% to 15% and 70%, respectively, of the oil selloff over the past year.
They said that Russian supply has nearly fully recovered despite the decision by many companies to stop buying Russian oil barrels, and a ban of Western financial and logistical services. Goldman upwardly revised its Russia production forecast higher by 0.2 million barrels a day for the second half of this year and by 0.4 million barrels a day for 2024.
The additional output cut by the Saudis and Goldman’s expectation that the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, will extend half of its April voluntary cut in 2024, will likely “only partly offset these bearish shocks, because we are also nudging down demand modestly on petrochemical weakness,” the Goldman analysts said.
Still, rising emerging-markets demand, slowing U.S. supply and OPEC output cuts may lift Brent oil prices to $93 a barrel by May 2024, they said. That compares with a previous forecast of $100 a barrel.
Goldman, meanwhile, reduced its forecasts for WTI to $81 from $89 a barrel for December, to $77 from $82 for 2023, and to $86 from $94 for 2024.
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