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Despite expectations that OPEC and Russia will likely decide to boost production this week, Goldman Sachs continues to have a very bullish view on oil prices, with strong demand growth and further supply losses pointing to continued declines in inventories and higher oil prices for the rest of the year.
“Our updated global supply-demand balance continues to point to further declines in inventories and higher oil prices in 2H18,” the investment bank said on Monday, as carried by Reuters.
Goldman kept its forecast that Brent Crude will hit $82.50 a barrel this summer and will end 2018 at $75 per barrel. At 06:01 EDT a.m. on Monday, Brent Crude had risen 0.68 percent at $73.94. Further increases to the Brent benchmark came in the afternoon, reaching $74.79 by 1:12pm EDT.
The bank has been bullish on oil for several months, and at the end of May it affirmed its summer peak forecast of $82.50 a barrel Brent, despite the price correction following the first reports that Saudi Arabia and Russia were looking to reverse some of the cuts. Back then, Goldman believed that the current market deficit, robust demand, and the rising levels of disruptions were setting the stage for inventories to drop further this year.
Three weeks later, when the market is largely expecting OPEC and allies to decide to boost production at this week’s meeting, Goldman continues to hold a bullish view.
Related: Iran Looks To Veto Saudi, Russian Oil Production Proposal
“We see the Brent moves since May 24 as pricing-in a higher level of OPEC and Russia production increase than we and consensus are expecting,” according to the bank’s analysts.
Goldman expects OPEC and its Russia-led allies to increase production by 1 million bpd by the end of this year, and by another 500,000 bpd next year, but it sees strong demand and more supply losses from Venezuela and losses from Iran offsetting the production boost.
“Our updated fundamental oil balance shows...that the oil market remains in deficit with resilient demand growth and rising disruptions requiring higher core OPEC and Russia production to avoid a stock-out by year-end.”
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.