Oil at $100 unlikely this year as deeper Opec+ cuts not expected, Goldman Sachs says

Deeper deficit required to push crude prices back to three figures

An oil rig anchored in Scotland. The oil market is pivoting into a deficit in the second half of the year, Goldman Sachs says. PA
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The price of crude oil is unlikely to hit $100 a barrel this year amid a lower possibility of Opec+ making deeper supply cuts and as China’s crude stocks near record highs, Goldman Sachs says.

Brent crude, the benchmark for two thirds of the world’s oil, has gained more than 5 per cent in the past month on additional output reductions by Opec+ members and as cooling inflation in major economies eases concerns of aggressive interest increases by central banks.

The market is pivoting into a deficit in the second half of the year, the US investment bank said. Prices could move towards $86 a barrel, it said.

A significantly larger deficit of 3.3 million barrels per day would be required to push crude prices back to three figures, Goldman Sachs said.

“In our view, it is unlikely that Opec+ would be inclined to cut production to drive up prices to such levels,” the bank said.

US shale companies, who have experienced a decline in production costs this year, may ramp up output, undermining any potential cuts by the alliance of 23 oil-producing countries, the report said.

Earlier this month, Saudi Arabia, the world’s largest crude exporter, said it would extend its voluntary output cut of one million barrels per day until August.

Russia will also cut its oil supplies by 500,000 bpd in August on top of the output reductions that have already been announced.

On June 4, Opec+ agreed to keep its current output policy in place until the end of 2024.

The group has total production curbs of 3.66 million bpd, or about 3.7 per cent of global demand, in place, including a two million bpd reduction agreed on last year and voluntary cuts of 1.66 million bpd announced in April.

There is increased awareness of the effects of high oil prices, with last year’s energy crisis contributing to radical policies aimed at reaching net-zero emissions, Goldman Sachs said.

Brent soared to nearly $140 a barrel in March 2022 as Russia’s invasion of Ukraine triggered fears about global energy shortages.

China, the world’s second-largest economy and top crude importer, is expected to be a big driver of crude demand this year.

China’s economy, which rebounded after the lifting of Covid-19 restrictions at the start of the year, lost momentum in May, posting weaker retail sales and manufacturing output while registering a slowdown in the property sector.

The country’s economy accelerated at a fast pace in the second quarter of this year as it continued to recover from the coronavirus-induced slowdown, but the pace of growth was slower than expected.

“While China’s macroeconomic performance leaves plenty of room for improvement, we note that China’s crude oil inventories are approaching all-time highs and are likely to be drawn down substantially should demand outperform,” Goldman Sachs said.

“On the other hand, recent disruptions to both Libyan and Nigeria production have drawn attention to the fact that supply from nations facing a higher risk of production disruptions is still broadly skewed lower than the levels sustained recently.”

Operations at two major Libyan oilfields came to a halt last week after tribal leaders protested against the apparent arrest of a former finance minister.

Production was resumed on Saturday, contributing to a drop in oil prices on Monday.

Updated: July 21, 2023, 3:30 AM