OPEC+ unlikely to increase production to curb rising oil prices: Goldman Sachs

The world’s most traded commodity got a major boost from the gas crunch in Europe and Asia, prompting forecasters to update their forecasts. One of the most bullish of all observers has been Goldman Sachs, whose commodity analysts have stuck to their price target of $80 for Brent crude regardless of the resurgence of Covid-19 in many key markets and other bearish events. Now, these analysts have raised their target to $90, arguing that oil has entered a structural bull market.

In a note from earlier this week, the Goldman commodities team noted the sizeable drawdowns in oil stocks, which currently stand at around 4.5 million barrels per day (bpd) and which are the biggest daily drawdowns ever recorded, are one of the factors driving the shift from a cyclical to a structural market.

Loss of U.S. oil production caused by Hurricane Ida is being seen as the major cause for the current rally.  With some 30 odd million barrels in total estimated production losses, Ida has become not only one of the most devastating hurricanes in recent history but one of the main reasons that OPEC+ production ramp-ups since July this year will fail to make a difference to world supply.

In fact, the International Energy Agency reported earlier that because of Hurricane Ida, global oil supply actually fell in August, despite OPEC+ ramp-ups, by 540,000 bpd. The IEA added it expected production growth to resume next month, but according to Goldman Sachs, this will be nowhere near enough to restore the balance between supply and demand.

The investment bank’s commodity analysts now expect Brent crude to hit $90 by the end of the year as demand for oil recovers amid the recovery in travel. The recovery, according to the analysts, will be driven by lower infection rates during the latest Covid-19 wave, which is proof that vaccination works and a return to normal life may be attainable once again.

A severe gas crunch has crippled Europe and is beginning to cripple China as well, pushing gas prices sky-high. China, on the other hand, is suffering the effects of tight coal supply and self-imposed stricter emission regulations that have added to energy costs. All this will drive a persistent deficit for oil markets, the Goldman analysts noted.

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