Goldman Sachs raised its 2022 price forecast for Brent crude from $99 to $104 per barrel. The increase was driven by the OPEC+ decision to reduce output by 2 million bpd.
Although the 2-million-barrel figure is nominal and the actual output cut would be smaller, at around half that, the bank believes the physical oil market is tight enough to justify such price forecast updates.
On a quarterly basis, Goldman sees Brent trading at $110 this quarter and rising to $115 per barrel in the first quarter of 2023.
In arguably the most bullish part of Goldman’s update, the bank said that there could be a $25 upside to their Brent forecast if OPEC+ maintains its output reduction through to 2023.
Yesterday, Morgan Stanley also raised its price forecast for Brent crude, to $100 for the first quarter of 2023. According to Goldman’s latest forecast, the average for Brent next year could be $110 per barrel as a result of the cuts.
The bank’s analysts commented that such a deep cut would prompt a response from the United States and that this response would most likely be a further release of strategic reserve crude.
According to Goldman, even the International Energy Agency might join the reserve release to keep a lid on oil prices.
Some media commentators have criticized the reduction of physical supply of oil at a time when most big consumers are struggling with inflation and an already short supply of energy. Bloomberg’s Javier Blas suggested it was a mistake.
The OPEC+ camp, on the other hand, motivated the move with market circumstances, with Saudi energy minister Abdulaziz bin Salman saying he did not want to gamble with the market. The remark likely refers to recession expectations that caused oil prices to decline by about a quarter between July and September.
"The oil market's buffers (stocks and spare capacity) remain critically low, and higher prices remain the key viable, long-term solution to increased inventories in the short term and higher supply capacity medium term," Goldman analysts said.
While oil prices had cooled off slightly early on Friday morning, they were still set for the largest weekly gain since Spring.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.