Structural underinvestment in oil and gas will put upward pressure on oil prices, Goldman Sachs’ commodities chief Jeffrey Currie told CNBC this week, commenting on commodity markets.
All markets except wheat, Currie noted, 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.
This shift, however, may stimulate short-term demand for oil, Currie also noted, expecting it to rise over the next few years as so-called green infrastructure is being built. Afterward, as this infrastructure starts operating, there will be a negative impact on oil demand and, likely, prices.
Oil started this week with a gain as the United States began vaccinating its frontline workers, but by the end of trade, prices were on the decline again as worry about excessive supply outweighed the positive news about the vaccines.
A supply and demand update from OPEC also weighed on prices, as the cartel revised down its forecast for oil demand for this year and next. In addition, Baker Hughes’ latest rig count report for the U.S. showed the most rig additions since January, fueling the oversupply worry. On top of it all, Libya has continued to boost its production, with the average daily hitting 1.28 million bpd this month, up from 1.25 million bpd at the end of November.
Despite the current challenges, Goldman is bullish on oil, expecting Brent to average $65 a barrel next year. The investment bank cited mass vaccinations and the limited increase in production from OPEC+ as factors driving the favorable trend.
Oil inventories are also declining thanks to strengthening demand from Asia, which has added to the general optimism about oil prices next year.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com:
- World Oil Demand Hits Two-Month High
- The Top U.S. Shale Gas Basin Continues To Bleed Cash
- Rig Count Sees Largest One-Week Increase Since January