Recent data show that the rebalancing of the oil market is speeding up and if the drawdown trends are sustained, stockpiles will normalize by early 2018, Goldman Sachs said on Thursday, adding that it was “cautiously optimistic” on oil prices.
“While OPEC’s production path remains uncertain, recent fundamental oil data have come in even better than we had expected,” Goldman said in a note, as quoted by CNBC.
“If sustained, these trends would help achieve the normalization in inventories by early next year,” the investment bank added.
Over the past month, oil prices have rebounded thanks to robust demand, strong draws in U.S. inventories, and drops in U.S. rig counts, Goldman said. Oil prices have risen above the investment bank’s price projection for September 2017 of US$50 per barrel of Brent, Goldman Sachs said.
The EIA reported this week another hefty decline in U.S. commercial crude oil inventories for the week ending July 21. The EIA said crude oil inventories diminished by 7.2 million barrels, to 483.4 million barrels. The EIA had reported strong inventory draws in the last three weeks as well. Meanwhile, the number of active oil rigs in the United States fell last week by 1 rig —its second loss in four weeks.
According to Goldman estimates, data from the U.S., Europe, Japan, and Singapore point to a total inventory drop of 83 million barrels since March. In addition, demand in the U.S., India, and China is strong, and Goldman expects it to stay strong through the end of this year, leading to sustained draws in the third quarter. Related: Oil Rises, But Saudis Face Daunting Dilemma
According to Goldman, this would tighten the physical oil market and flip the market structure to backwardation this year.
However, the bank is still “cautious” on prices because the inventory decline needs to show it will be sustained.
Earlier this month, Goldman Sachs said that oil prices could soon fall below US$40 if there wasn’t a sustained drawdown in U.S. crude inventories and rig counts, or without any bold “shock and awe” action from OPEC. The oil market is searching for a new equilibrium, Goldman said back then, adding that it was still too early to tell whether the most recent inventory reductions in the U.S. are an anomaly or if they signal the start of something more durable.
By Tsvetana Paraskova for Oilprice.com
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