Goldman Sachs expects Brent Crude prices to hit US$67.50 a barrel in the second quarter of the year as ‘shock and awe’ production cuts by OPEC and increased supply disruptions couple with healthy demand and seasonal inventory declines to drive prices higher.
“Producers are adopting a ‘shock and awe’ strategy and exceeding their cut commitment,” the investment bank said in a research note from February 12.
“The production losses to start 2019 are already larger than we expected,” Goldman says, noting that more disruptions could be coming, due to the U.S. sanctions on Venezuela’s oil industry.
“Disruptions have increased with risks that Venezuela’s production decline accelerates following the introduction of additional U.S. sanctions related to the Venezuelan oil industry,” Reuters quoted the investment bank as saying.
Oil fundamentals are clearly improving and are already visible in the larger-than-seasonal drop in inventories, according to Goldman Sachs.
At the start of the year, the investment bank had reduced its outlook for oil prices this year citing abundant supply. Back in early January, Goldman expected Brent Crude to average US$62.50 a barrel this year, down from an earlier projection of US$70 a barrel. WTI Crude, according to Goldman Sachs, will average US$55.50 a barrel, compared with an earlier estimate of US$64.50 a barrel.
Now projecting second-quarter oil prices, Goldman sees Brent Crude hitting US$67.50 next quarter, compared to US$62.87 early on Wednesday, up 0.72 percent on the day.
Earlier this week, OPEC’s largest producer and de facto leader Saudi Arabia signaled even deeper cuts in production and exports of the Kingdom for March. In an interview with the Financial Times, Saudi Arabia’s Energy Minister Khalid al-Falih said that the Saudis would cut production to around 9.8 million bpd in March, some 500,000 bpd below the commitment in the OPEC+ deal that began in January.
The cartel’s secondary sources showed on Tuesday that total OPEC production in January dropped by 797,000 bpd from December to average 30.81 million bpd. Saudi Arabia cut production by 350,000 bpd to 10.213 million bpd, and its Arab Gulf allies Kuwait and the United Arab Emirates (UAE) also cut output substantially.
