The global oil market has flipped to a deficit sooner than Goldman Sachs Group Inc had expected.
A decline in production driven by unexpected supply disruptions, as well as sustained demand, have led to a “sudden halt” to the market surplus, Goldman analysts including Damien Courvalin and Jeffrey Currie wrote in a report on Sunday.
That has prompted the bank to raise its US crude price forecast to US$50 per barrel for the second half of the year from a US$45 estimate in March.
The unexpected outages caused by everything from wildfires in Canada and pipeline attacks in Nigeria will keep the market in deficit through the second half of this year, according to Goldman.
Still, the return of some of the output and higher-than-expected US, North Sea, Iraq and Iran production means the bank predicts the shortfall will be at 400,000 barrels per day versus the 900,000 previously expected.
A shift back to a surplus is seen early next year, it said.
“The physical rebalancing of the oil market has finally started,” the Goldman analysts wrote. The changes to forecasts “reflects our long-held view that expectation for long-term surpluses can create near-term shortages and leaves us cyclically bullish, but long-term bearish.”
Goldman cut its crude price forecast for the first quarter of next year to US$45 per barrel from US$55 previously, but sees oil rising to US$60 by the end of next year. The bank expects global oil demand to grow by 1.4 million barrels per day this year, versus 1.2 million predicted earlier.
West Texas Intermediate crude, the US benchmark, rose 1.3 percent to US$46.82 per barrel by 12:46pm Singapore time on the New York Mercantile Exchange. Front-month futures are up about 80 percent from a 12-year low earlier this year. Brent, the marker for more than half the world’s oil, was at US$48.45 per barrel in London.
While supply disruptions over the past two weeks have reduced production by 1.5 to 2 million barrels per day, prices are up only US$2 per barrel, reflecting ample inventories in the market, according to Goldman.
With stockpiles at historically elevated levels in several countries, the current outages have little impact on the availability of crude barrels, it said, adding that “high product stocks would even allow for lower refinery runs if necessary.”
The pace of draws in inventories is what will drive prices, as uncertainty surrounding future supply-demand balances remains “significant,” according to the bank.
“The price recovery will remain anchored by near-term inventory shifts, with the oil market less forward looking than over the past two years,” the analysts wrote.
While US stockpiles of crude shrank in the week ended May 6 for the first time in more than a month, stored supplies remained close to the highest since 1929, data from the Energy Information Administration show.
Goldman’s expectation for the market to return to a surplus next year reflects the view that low-cost producers will continue to drive output growth, boosted by Saudi Arabia, Kuwait, the UAE and Russia, the bank said.
“While the physical barrel rebalancing has started, the structural imbalance in the capital markets remains large,” the analysts wrote. “The industry still has further to adjust and our updated forecast maintains the same 2016 to 2017 price level that we previously believed was required to finally correct both the barrel and capital imbalances, and eventually take prices to US$60 per barrel.”
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