Goldman Sachs had another bullish message for oil markets this week, saying in a note that it expected global oil demand to recover to pre-pandemic levels of 100 million bpd by August this year.
According to Goldman, the oil market was in a deficit of 2.3 million bpd in the final quarter of 2020. With supply still tight at the start of 2021, the immediate future for prices is bright despite expectations for a slow demand recovery.
Even so, supply will grow this year, Goldman Sachs also noted, with the deficit narrowing to 900,000 bpd during the first half of the year. That’s up from an earlier projection of a deficit of 500,000 bpd.
At the end of 2020, Goldman Sachs’s commodities chief Jeffrey Currie said he expected Brent crude to rise to $65 a barrel this year, citing structural underinvestment in the industry.
All markets except wheat, Currie noted in late December, are in a deficit, and this is certainly bullish for prices. But what he calls structural underinvestment also has its part to play for the future of prices. This is particularly true for oil, where the underinvestment is not just motivated by the price rout, but by the shift towards renewable energy investments.
Last month, the bank praised the $1.9-trillion stimulus package proposed by President Joe Biden, saying it could boost U.S. oil demand by 200,000 bpd. Among the bullish factors for oil, the bank also listed Biden’s moratorium on federal land drilling, the revocation of the permit for Keystone XL, and the moratorium on all oil and gas leasing in the Arctic National Wildlife Refuge.
These factors will likely contribute to what Goldman expects to be a slow increase in non-OPEC supply, which will in turn benefit prices while demand recovers, however slowly this may happen now that new strains of the coronavirus are emerging.
By OPC Markets
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Since China’s early exit from the lockdown in April 2020 and with its crude oil imports breaking all previous records, I have been repeatedly saying since then that Brent crude price will hit $45-$50 a barrel in the last quarter of 2020. This it did when it hit $51.
Also I have been saying since mid-2020 that Brent crude will hit $60 in the first quarter of 2021 rising further to $70-$80 in the third quarter and averaging $60-$65 in 2021 with global oil demand recovering to 2019 level of 101 million barrel a day (mbd) by mid-2021.
To my great surprise and also gratification, Goldman Sachs came up a month go with a projection that Brent crude will average $65 in 2021 almost identical to my projection in mid-2020.
Lo and behold, they have done it again and copied my projection. They are now projecting that global oil demand is to rebound to 100 mbd by August this year.
For posterity’s sake, I will now make another projection and see if Golden Sachs copies it. With the global oil industry delaying (perhaps indefinitely) $131 bn of oil and gas projects which were slated for approval in 2020, there could be a huge supply deficit estimated at 15 mbd thus pushing Brent crude price above $100 a barrel by the end of 2022 and early 2023.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London