Market Analysis
Goldman Sachs analysts have revised their predictions regarding OPEC+'s upcoming actions, stating they no longer anticipate a partial reversal of recent voluntary production cuts by June. Instead, they foresee Saudi Arabia maintaining its crude oil supply at 9 million barrels per day in July, down from their earlier estimate of 9.2 million barrels per day. The shift in expectations is attributed to several factors.
Firstly, recent inventory data has surpassed expectations, leading to a lower likelihood, estimated at 37%, of a production increase in June. Secondly, compliance data on production cuts suggests that extending Saudi Arabia’s 1 million barrel per day reduction, within the broader 2.2 million barrel per day cut, would be financially beneficial for the country in the short term. Lastly, heightened interest rates have emphasized the significance of these short-term profits in funding Saudi Arabia's ambitious investment plans.
However, the analysts note that despite high spare capacity, a modest increase in targeted production remains plausible. This adjustment follows a recent announcement by the UAE regarding increased capacity, prompting a slight increase in the estimate of global spare capacity for May 2024 to 6.5mb/d.
Goldman Sachs regards the mechanical effect of reduced OPEC+ production as favorable for spot oil prices compared to long-dated prices. Nonetheless, they maintain their projection that Brent crude will average $82 per barrel in 2025, attributing OPEC's decision to respond to bearish inventory levels and citing high spare capacity as a limiting factor for long-dated oil prices.
The analysts also anticipate Brent crude to remain within a $75 to $90 range in most scenarios. They identify geopolitical obstacles to OPEC's ability to utilize spare capacity as the primary upside risk to oil prices, while potential negative effects of high spare capacity on OPEC cohesion pose some downside risks.
Paraphrasing text from "Reuters" all rights reserved by the original author.