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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Why Goldman Sachs Believes Oil Won’t Go Higher

Despite the somewhat sudden end of the U.S. sanction waivers for all Iranian oil buyers, Goldman Sachs doesn’t see oil prices rallying much higher.

“While we acknowledge the near-term upside price risks, we reiterate our fundamentally derived Brent price trading range of $70-75 per barrel for the second quarter of 2019,” Reuters quoted the investment bank’s note from Monday.

Before the U.S. announcement on Monday that it would not be extending waivers to anyone after they expire in May, Goldman Sachs was one of the investment banks that don’t see oil prices reaching $80 a barrel as they did in Q3 last year because there’s only modest upside to price gains. 

After the announcement of the end of the waivers, which caught many analysts off guard, Goldman Sachs continues to believe that the upside is modest and that the upside price risk will just be seen in the near term.

Goldman continues to see limited upside because of the high uncertainty whether OPEC and its Russia-led non-OPEC allies will extend their production cut pact after June this year.

The U.S. “maximum pressure” to choke off all Iranian oil sales is making the OPEC+ pact even more vulnerable to break-up than before, because the U.S. appears certain that Saudi Arabia and the United Arab Emirates (UAE) will offset lost Iranian barrels.

Saudi Arabia, for its part, said that it “will be consulting closely with other producing countries and key oil consuming nations to ensure a well-balanced and stable oil market.”

On Monday and Tuesday, oil prices spiked on the news that the U.S. is exerting maximum pressure on Iran, with Brent Crude and WTI Crude rallying to near six-month highs.    

Barclays analysts see the end of the waivers potentially adding at least $5 a barrel to their current Brent Crude average forecast of $70 a barrel this year, but not impacting prices in the longer term.  

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on April 23 2019 said:
    With or without US sanction waivers, oil prices are headed towards $80 a barrel or higher because of a convergence of bullish influences currently at play such as a strong global oil demand adding 1.45 million barrels a day (mbd) this year over 2018, rock solid Chinese oil imports projected to hit 11 mbd this year, a Chinese economy growing at 6.4% this year beyond the projected 6.3%, a confirmed slowdown in US production and a tightening global oil market caused by OPEC+ production cuts.

    If these bullish influences stay with us this year, the chances of oil prices going beyond $80 a barrel are very credible.

    However, the end of the US sanction waivers will have very negligible impact on oil prices and global oil supplies in the long term for three reasons.

    The first is that US sanctions against Iran’s oil exports have so far failed to cost Iran the loss of even one barrel of oil.

    The second is that the eight largest buyers of Iranian crude oil who were given US sanction waivers last November with the exception of South Korea and Japan will continue to buy Iranian crude with or without waivers.

    The third reason is that without waivers, Japan and South Korea which account for 14% of Iranian oil exports may have to stop importing some 300,000 b/d. However, this will be more than offset by increased purchases from China, India and Turkey.

    In ending the waivers, President Trump could be banking on conning Saudi Arabia again to raise its oil production to offset a so-called decline in Iran’s oil exports. However, the Saudis may not play ball with Trump again having seen how oil prices lost 43% of their value between November and December last year at very considerable cost to their economy. Saudi Arabia might decide to wait until the global oil market is irrevocably re-balanced and oil prices are headed to $80 a barrel or higher being the price it needs to balance its budget.

    President Trump might also be banking on Libya raising its oil production, hence his telephone call to Libyan field Marshal Khalifa Haftar who is battling to take the Libyan capital, Tripoli. However, Libyan oil production has been erratic since 2011 ranging from an estimated 300,000 barrels a day (b/d) to almost 1 million barrels a day (mbd) in 2018 with most of the major facilities, oilfields and exporting terminal disrupted from time to time.

    By ending the waivers, President Trump is tacitly admitting that US sanctions on Iran have so far failed and that a non-renewal of the sanction waivers will have no effect on global oil supplies and prices on the long term.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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