In the second downward revision of its oil price outlook in just one month, Goldman Sachs slashed again its estimates for 2020, noting that even deeper OPEC+ cuts and central banks’ interventions may not be able to erase the glut amid depressed oil demand and Brent crude could fall to as low as $45 a barrel next month.
According to a Goldman note from Tuesday, OPEC+ cuts may help inventories balance later in 2020, but they will not be able to prevent an already sizeable inventory accumulation around the world, because of the slump in demand in the coronavirus outbreak.
“It will take sustained curtailed OPEC+ production - rather than global synchronized rate cuts - to help prices gradually recover from April onwards,” Goldman Sachs analysts said in the note, as carried by Reuters.
Goldman Sachs does not rule out Brent Crude falling to $45 a barrel in April. This compares to $52 per barrel Brent early on Wednesday.
For the third and fourth quarter of 2020, Goldman Sachs now sees Brent Crude averaging $53 a barrel in Q3, down from a previous forecast of $60, and averaging $59 in Q4, down from $65 expected previously.
According to the investment bank, this year’s oil demand growth will see the lowest pace of growth since the 2008-2009 financial crisis. Related: Oil Prices Rise As Market Expects Large OPEC+ Cut
This week’s cut in the oil price outlook is Goldman Sachs’s second downward revision of prices in one month—it had already slashed forecasts by $10 a barrel in the middle of February.
Earlier in February, Citigroup slashed its oil price forecasts for three of the quarters this year and doesn’t rule out Brent Crude sliding to as low as $47 a barrel as the bank sees the impact of the coronavirus on oil demand—and the economy in general—as being more severe than initially thought.
Earlier this week, Bank of America Merrill Lynch slashed its 2020 oil price forecast for Brent Crude by $8 per barrel. BofA cuts its 2020 average oil price projection for WTI Crude to $49 a barrel and for Brent to $54 per barrel.
The oil price rout last week is putting more pressure on OPEC and its partners to agree later this week on deep cuts in Q2 to try to support prices.
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By Tsvetana Paraskova for Oilprice.com
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President Trump’s almost two-year trade war on China between March 2018 and December 2019 has augmented the glut from a relatively manageable 1.0-1.5 million barrels a day (mbd) before the war to an estimated 4.0-5.0 mbd. The glut was big enough to undermine OPEC+ production cuts, absorb the attack on Saudi oil infrastructure and the resulting loss of half of Saudi oil production and also the exchange of attacks between the US and Iran.
The de-escalation of the trade war promised a faster economic growth for the global economy, a stronger oil demand and a fast depletion of the glut. But that was never to be with the outbreak of the coronavirus. However, the outbreak will not be with us forever. Soon the global economy will resume its growth thus accelerating the depletion of the glut and pushing oil prices upwards.
Until the outbreak is contained, no one can accurately assess its adverse impact on global oil demand. That is why any deepening of OPEC cuts while the outbreak is still going on is oil down the drain.
Oil prices go up and down with developments in the market but they will soon find their true level underpinned by the end of the coronavirus outbreak and a continued de-escalation of the trade war.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London