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Goldman Sachs lifts oil price forecast to US$90 a barrel

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By Small Caps - 

Supply disruptions and increasing demand for oil has seen US investment bank Goldman Sachs raise its forecast year end price for the commodity to US$90 per barrel.

The Wall Street bank ramped up its already-optimistic forecast on the weekend, adding another US$10 onto its previous US$80/bbl forecast for Brent Crude (the international standard).

Last week, Goldman believed that the natural gas crunch combined with a colder-than-usual winter in Europe and Asia could pose an upside risk of US$5 a barrel to its original price projections, with the potential for oil to hit US$85/bbl.

For natural gas, weather is almost always the biggest influence and with expectations for a very cold European winter this year, utilities and physical traders have already commenced stockpiling natural gas at “historically elevated rates”.

Goldman predicted the cold snap could lead to additional oil demand of up to 900,000bbl per day.

Prices may well surge past US$85/bbl if the approaching winter proves colder than normal.

Tightening markets

Goldman’s price adjustment to US$90/bbl comes in light of tightening oil markets and robust demand recovery amid disruptions to global supply from hurricanes Ida and Nicholas.

Ida ripped through the Gulf of Mexico in late August, damaging platforms pipelines and processing hubs and shutting down nearly all of the region’s offshore oil and gas production.

Nicholas hit soon after and while it failed to add much to the damage, it succeeded in putting Ida recovery efforts on hold.

By mid-September, nearly 30% of oil production and 40% of gas production was still offline while Texan oil and gas companies grappled with the damage.

OPEC+ supply

Goldman said the shut-in production had offset a rise in OPEC+ (Organisation of the Petroleum Exporting Countries Plus) supply since July, while supply growth from producers outside the pact had been below expectations.

It added that the global oil supply-demand deficit was larger than expected, with a faster-than-anticipated recovery in demand following impacts of the Delta coronavirus variant.

“While we have long held a bullish oil view, the current global supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply remaining short of our below-consensus forecasts,” Goldman said.

While US$90/bbl is likely in the near term, the bank expected prices would pull back to US$80/bbl by the end of next year.

Meanwhile, West Texas Intermediate crude is expected to reach US$82/bbl by year end before sliding to US$77/bbl by the end of 2022.