Goldman Sachs has further upgraded its target for crude oil prices, which continue to be pushed higher by Saudi Arabia and OPEC.
OPEC triggered a further rally in crude with Thursday’s decision to keep output quotas unchanged in April despite market expectations for supply to notch up in order to meet demand as the world progresses Covid-19 vaccination campaigns.
Inside OPEC’s unchanged quotas is Saudi’s unilateral 1mln barrel per day cut in volumes, which is now effectively being extended for another month.
By Friday morning’s deals Brent crude was priced at around US$67.85 per barrel, up 1.6% for the day.
Analysts at Goldman, in a note, noted that Saudi is guiding for only a gradual ramp-up of volumes after the extended quota.
At the same time, the American bank highlighted that with crude oil prices up 25% since January and excess inventories reduced by an estimated 56% the cut in volumes is working in Saudi’s favour.
Moreover, Goldman highlighted that OPEC’s strategy is working because of its “unexpectedness and suddenness” and the cartel’s approach is presently in contrast with the pre-2020 strategy in which the bank says OPEC viewed itself as ‘the central bank of the oil market’.
“We were already bullish oil prices because we expected OPEC’s conservative demand expectations to leave its ramp-up lagging our above consensus demand forecasts,” Goldman analyst Damien Courvalin said.
“We believe it is now clear that OPEC+ is in fact pursuing a tight oil market strategy.”
“Given our demand forecasts remain unchanged and above consensus, OPEC’s decision is leading us to raise our Brent forecast.”
Goldman lifts its Brent crude forecast by US$5 per barrel to US$75 for the second quarter of 2021, then rising further to US$80 for the third three-month block of the year.
The forecast for the fourth quarter of 2021 and 2022 see the crude price subsequently slipping back slightly, returning to US$75, due to the potential for higher supplies and decelerating demand gains.
Adding another wrinkle to its analysis, the American bank increased its forecast for US shale production volumes (by around 300,000 bopd) as pricing improves, but, notes that this remains more than offset by the amount of supply being kept out of the market by OPEC in 2021.