Why Goldman Sachs still sees oil peaking above $82 a barrel this summer

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Goldman Sachs on Monday said it continues to expect Brent crude oil prices to peak above $82 a barrel this summer, even after assuming that the Organization of the Petroleum Exporting Countries will soon agree to lift production.

“Oil prices have sold off over the past three weeks on concerns over higher OPEC production, weaker [emerging market] demand, escalating trade wars and rising inventories,” analysts at Goldman wrote in a research note.

Brent crude-oil futures posted a loss of roughly 4% last week to settle Friday at a six-week low of $73.44. In Monday dealings, August Brent












LCOQ8, +2.46%










 traded at $74.48 a barrel, up $1.04, or 1.4%.

“Our updated fundamental oil balance shows, however, that the oil market remains in deficit with resilient demand growth and rising disruptions requiring higher core OPEC and Russia production to avoid a stock-out by year-end,” the Goldman analysts said.

They reiterated their forecast for a further rally in Brent prices, noting that their outlook comes “with risks to our peak $82.50 forecast still skewed to the upside later this year.”

The oil market has “rebalanced,” with crude inventories among the industrialized nations that are part of Organization for Economic Cooperation and Development standing below the five-year average, the analysts said. Based on days of demand coverage, OECD inventories are 4% below five-year average levels.

They said Goldman economists still view global growth as “solid” and emerging market fundamentals as “mostly intact especially for the larger economies that matter most to oil demand growth such as China and India.”

And while they’ve “cautiously reduced” their 2018 emerging market year-over-year [oil] demand growth forecast to 1.75 million barrels a day, down 100,000 barrels a day from a previous view, that’s partially offset by higher U.S. demand.

Even if the EM outlook proves to be too optimistic, “a market entrenched in deficit since last fall and a likely only moderate increase in total OPEC production would require a sharp collapse in EM activity to push the market into surplus,” the analysts said.

Just to bring global inventories back to average levels by next summer, global GDP growth would have to fall by 1% over the coming year, “even assuming an 1.5 [million barrel a day] increase in OPEC production,” they said.

Members of OPEC, along with its nonmember allies, led by Russia, will meet in Vienna later this week to discuss the impact of their production-cut agreement and whether or not to continue the reductions as Venezuelan output takes a hit from an economic crisis and as upcoming U.S. sanctions threaten Iranian oil supplies. Analysts generally expect the oil producers to boost production.

Read: OPEC risks destroying its oil market success

The Goldman analysts said that while Brent oil prices may remain “range bound” as OPEC initially increases production, “we continue to expect higher prices in coming months and still see upside risks to our year-end $75 [a barrel] Brent forecast.”



Source : MTV