In just five days, Goldman Sachs has changed its mind about the expected OPEC cuts compliance, now seeing cartel members—especially Saudi Arabia—as having a “strong” incentive to stick to promised cuts, which prompted the bank to raise on Friday its WTI price forecast for the second quarter next year to US$57.50 from US$55.
The forecast for WTI price for the first quarter of 2017 was left unchanged at US$55.
Goldman Sachs also lifted its Brent Crude price forecast to US$59 from US$56.50 for the second quarter, and now expects Brent price to average US$57.40 next year, up by US$3.40 compared to previous estimates.
Five days ago, Goldman was expecting low compliance to the cuts, and kept its WTI price forecast at US$55 for the first half of 2017.
Having analyzed Saudi Arabia’s fiscal revenue expectations and outlook for next year, Goldman now sees the compliance at 84 percent.
“Ultimately, our work on Saudi Arabia's fiscal balance suggests that the kingdom has a strong incentive to cut production to achieve a normalization of inventories, even if it requires a larger unilateral cut, consistent with comments last weekend by the energy minister,” Goldman Sachs said in a note today, as quoted by Platts.
Last week OPEC and 11 non-OPEC nations promised to cut supply by almost 1.8 million bpd - 1.2 million bpd from the cartel and another 558,000 bpd from non-OPEC producers, including Russia.
Following Saturday’s meeting between OPEC and non-OPEC producers, Saudi Arabia’s oil minister Khalid al-Falih further stoked the markets signaling that the Saudis would be ready to cut even more than they had committed to in the deal.
Nigeria and Libya – exempt from OPEC’s cuts – bringing more barrels online, as well as a stronger dollar could be downsides to higher oil prices in the near term, according to Goldman Sachs.
The bank also raised its forecast for U.S. shale oil output by 300,000 bpd for the second half of 2017.
By Tsvetana Paraskova for Oilprice.com
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