Goldman Sachs has reiterated its $80 price forecast for Brent crude despite reports that Saudi Arabia and the United Arab Emirates had reached a deal on oil production that will extend the OPEC+ deal until the end of next year.
Crude oil fell after the news of the Saudi-Emirati agreement broke as the uncertainty surrounding the future of the OPEC+ deal and OPEC itself disappeared. Yet, the agreement will mean more UAE oil coming to the market. It also means further pressure from the Emirates to boost production in the future.
However, later on Wednesday, the Emirati News Agency wrote, citing the Ministry of Energy and Infrastructure that "deliberations between the concerned parties are still going on and that an agreement had not been reached yet."
Earlier this month, the UAE blocked a deal on OPEC+ raising oil production from August, making any agreements contingent on revising the "unfairly low" Emirati baseline from 2018. The UAE was insisting on a higher baseline from which to calculate its quotas because the 2018 figure hadn't reflected the country's expanded production capacity. The UAE has ambitions to raise its oil production capacity to 5 million bpd by 2030, from around 4 million bpd now.
Now, if an agreement is indeed reached, the UAE will be allowed to raise its baseline production level to 3.65 million bpd but only when the current deal expires in April next year. That would be up from 3.17 million bpd as the current production baseline for OPEC's third-largest producer.
Goldman has been one of the most bullish banks when it comes to oil. It has stuck to its $80 for Brent this year no matter the latest developments. The bank still expects the oil market to sink into a deficit of as much as 5 million bpd by the end of this year because of the strong rebound in demand that we are already witnessing.
"The magnitude of the coming change in the volume of demand -- a change which supply cannot match -- must not be understated," the investment bank said in April.
By Irina Slav for Oilprice.com
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The rise in prices is underpinned by a global economy growing at 6.3% this year or more than double its growth in 2019, the end of glut in the global oil market and the return of global oil demand to its pre-pandemic level.
The compromise reportedly reached between Saudi Arabia and the UAE is a win-win for both countries and OPEC+ as it removes uncertainty from the global oil market. Saudi Arabia keeps the current OPEC+ agreement in place until the April 2022 and the UAE has its production baseline lifted from the current 3.17 million barrels a day (mbd) to 3.65 mbd from April 2022.
However, the concession given to UAE will open the door for Iraq whose production capacity is 50% larger than UAE’s to demand a lifting of its baseline from 3.75 mbd currently to 5 mbd followed by similar demands from Iran, Libya, Nigeria and Kuwait. But that is a matter for OPEC to deal with after April 2022.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London