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Goldman Sachs continues to hold a bullish view on oil despite the ongoing market sell-off, reiterating in a note its stance that “the skew to prices from here is squarely skewed to the upside.”
Goldman Sachs strategists, including Jeffrey Currie and Damien Courvalin, stress-tested their bullish view and found that despite growing concerns over oil fundamentals, both for higher supply and weaker demand, Brent’s fair value would remain above current market forwards in the second half of 2022 and in 2023.
With low inventories and a potential Saudi/UAE ramp-up in production in the region of 500,000 barrels per day (bpd), which will further deplete “record low spare capacity,” the risks are firmly skewed to the upside, Goldman Sachs’ analysts wrote in the note.
Under an adverse scenario, Brent’s fair value would be $120 in the second half of 2022 and $110 in 2023, down from Goldman’s forecasts of $135 and $125 a barrel, respectively, the bank’s strategists noted.
Even the worst-case scenario would still imply a Brent fair value of $105 for H2 2022 and $90 a barrel in 2023, also above market forwards.
“As a result, we reiterate our bullish oil price view following the recent sell-off,” Goldman Sachs said.
Early on Thursday, oil prices were down by 4% to levels last seen in February, just before the Russian invasion of Ukraine.
At the end of last month, Jeffrey Currie, global head of commodities research at Goldman Sachs, said that the upside risk in crude oil and refined products “is tremendously high right now.” The recent pullback in oil prices could be a buying opportunity because prices are set to go higher from here this summer, according to the Wall Street bank.
Last week, Goldman’s Courvalin told CNBC that oil could still hit $140 per barrel.
“$140 is still our base case because, unlike equity, which are anticipatory assets, commodities need to solve for today’s mismatched supply and demand,” Courvalin said.
By Michael Kern for Oilprice.com
Michael Kern is a newswriter and editor at Safehaven.com and Oilprice.com,