From Tsvetana Paraskova: On the back of OPEC cuts, Goldman Sachs expects WTI oil prices to rise to US$57.50 in the first half this year as reduced supply would move the market into deficit and draw down the current large oversupply, ZeroHedge reports, citing Goldman’s Allison Nathan view of “what keeps Goldman up at night” about this year’s commodity and currency markets and global political and economic policy developments.
Brent prices are seen peaking at US$59 per barrel in the first half with the cuts implemented. The cuts would also push the oil market to a deficit in the first quarter, Goldman says, expressing a more optimistic view on the drawdown of oversupply than OPEC, which expects the market to rebalance in the second half, than the International Energy Agency (IEA) which sees the cuts likely moving the market into deficit in the first half by an estimated 600,000 bpd.
In Goldman’s view, the deficit in the first quarter would move the market into backwardation by the summer.
Commenting on U.S. production, the bank said:
“We continue to believe shale productivity gains allow for substantial US production growth at oil prices of $50-$60/bbl and that E&P companies reaping these production gains are not being sufficiently rewarded.”
The investment bank’s forecasts hinge on whether OPEC and non-OPEC producers that have joined the cuts would deliver on their promises. Goldman currently sees compliance at 84 percent, in view of the historically poor compliance from countries outside of the Gulf Cooperation Council (GCC), which includes Saudi Arabia, Kuwait, Qatar, Bahrain and Oman. Full compliance means a US$6-per-barrel upside to Goldman’s price projection.
Still, basically no one expects full compliance, and Goldman Sachs is no exception, saying that even if Russia had committed to a 300,000-bpd cut, its share would rather be closer to 200,000 bpd and total non-OPEC cuts would be around 460,000 bpd, and technically – 100,000 bpd less, because of natural declines in output rather than actual cuts.
Regarding Russia, Goldman said: “We expect Russia will freeze production at current levels”.
United States Oil Fund LP (ETF) (NYSE:USO) fell $0.01 (-0.09%) in premarket trading Wednesday. Over the past year, USO has gained 4.00%, versus a 11.63% rise in the benchmark S&P 500 index during the same period.
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