By Nicholas Earl
Oil prices could hit $100 per barrel next year, Goldman Sachs has predicted, after OPEC+ made the surprise move of slashing oil output by 1.1m barrels per day this week.
OPEC+, which consists of the world’s most influential cartel and its allies such as Russia, had been expected to maintain current pledges to cut output at 2m barrels per day until the end of the year.
The new supply cuts, which are mostly to be shouldered by Saudi Arabia, are scheduled to start from May, and coincide with a demand rebound as airport activity takes off.
Goldman has now hiked its predictions for Brent Crude by $5 to $95 per barrel by December 2023, and raised its expectations for December 2024 $3 to $100 per barrel.
These predictions reflect quite a turnaround for the commodity, as while the International Energy Agency and OPEC have remained bullish over oil demand, both major benchmarks were heavily blunted by financial instability last month.
Turmoil across the banking sector saw Brent Crude prices tumble from $86.18 per barrel to $72.77 per barrel over an 11 day decline last month.
However, following OPEC+’s cuts, markets have now roared back to life, with Brent Crude and WTI Crude trading at $85.70 per barrel and $81.37 per barrel respectively on Tuesday afternoon.
Goldman argued OPEC+’s move was surprising, but reflects the cartel’s increasingly interventionist approach in a challenging economic and political climate following the pandemic, invasion of Ukraine and threat of a global economic downturn.
The bank said the surprise production cut was “consistent with the new OPEC+ doctrine to act pre-emptively because they can without significant losses in market share.”
“The risks around cutting production have become asymmetric given how short positioning has become, and because price increases in response to tightening events can be stronger when the market is short,” the bank added.
Oil be there for you: Experts say $100 in sight
City A.M. spoke to oil experts across the industry on OPEC+’s decision to cut production levels and ask them whether Goldman’s predictions were a real possibility or overly optimistic.
Jorge Leon, senior vice president at commodity experts Rystad Energy, was very confident the century milestone was now in reach.
He said: “If fully delivered, the announced cut would further tighten an already fundamentally tight oil market, driving the Brent benchmark towards $100 per barrel sooner than previously expected and would push the price to around $110 per barrel this summer.”
Callum Macpherson, head of commodities at Investec, was uncertain over OPEC+’s rationale for the cuts, but argued the effects on markets were clear to see.
He said: “The motivation behind the cut announced by eight out of the twenty OPEC+ members is not clear from the very limited public statements that have been made. It may be due to concerns about the spill over of equity recent market volatility into oil prices or because members perceive a weakness in the physical market that is not apparent to the wider market.
“Whatever the purpose behind the cuts, the scope for supply growth outside of OPEC+ members are limited and in combination with tighter conditions expected later this year even before this cut was announced, there is now greater upside risk to prices. The market already looks to be breaking out of the downtrend from last summer and maybe able to break through $90 per barrel /b or even 100 $/b in the coming weeks and months.”
Craig Erlam, senior markets analyst at Oanda, was also open-minded to the $100 milestone being passed, however he argued other factors aside OPEC+ policy had to be considered such as the macroeconomic climate.
He said: “I don’t think $100 oil is an outrageous forecast, far from it actually. OPEC+ has once again shown a firm desire to put a floor in prices and it showed no desire to put a ceiling on them when they were around those levels last summer. That it is so willing to repeatedly cut production in an already tight market is a very bullish factor.
“But in much the same way that the previous cut didn’t make that an inevitability, neither does this. There are other driving forces which remain highly uncertain, like the outlook for inflation, interest rates and the global economy in light of recent events. These are all potential downside factors that counter those cuts. The situation remains very unclear which makes making assumptions on the price 12 months from now extremely difficult.”
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