Benefiting from the reflation trade, the two oils continued to move upward on Monday evening (Feb. 22), and as of press Time, WTI Crude Oil futures rose more than 3% to $61; Brent crude oil also broke above $64 per barrel, up nearly 3% during the day.
The current market is very optimistic about the prospects for economic recovery, the Bank of America’s latest upward revision of the U.S. GDP growth forecast to 6.5% this year, previously expected to be 6%; upward revision of next year’s GDP growth forecast to 5%, previously expected to be 4.5%. Goldman Sachs also raised its expectations for the oil market during the day.
A month ago, when Brent crude oil prices hovered around $55, Goldman Sachs was high on the price, expecting Brent crude oil prices to reach $65 per barrel this summer.
Only 40 days have passed and Brent prices have already rebounded sharply, climbing to $64 as of Monday and have risen about 22% so far this year.
And in its latest report, Goldman Sachs expects Brent crude prices to reach $70/barrel in the second quarter and $75/barrel in the third quarter. In other words, in just one month, Goldman Sachs has raised Brent crude oil prices by a full $10/barrel compared to previous expectations.
Why did Goldman Sachs change its report again? In the research report, the bank detailed its bullish reasons.
Goldman Sachs expects global consumer demand for crude oil to rebound to pre-Epidemic levels by the end of July, while output in major oil-producing countries is likely to remain “highly inelastic” to higher prices and crude oil production growth will lag behind demand recovery.
Analysts at Goldman Sachs, led by Damien Courvalin, said in a report.
“The crude supply gap will widen further this spring after the winter demand boom, as OPEC+ production growth will lag the pace of demand recovery we expect.”
Specifically, on the issue of the supply gap, Goldman Sachs listed four main reasons.
- increased OPEC+ production will struggle to reach supply-demand balance levels amid accelerating global inventory declines.
- There is no indication that oil production activity will increase in most non-OPEC+ producing countries outside North America, implying that oil supply in the coming year could be 900,000 barrels per day lower than the bank’s estimate.
- The key drivers of U.S. shale oil production – the large explorers and producers – remain focused on paying dividends to shareholders and will not have many new extraction plans.
- Biden‘s stance on the Iranian nuclear talks is less clear, and Iran’s crude oil production may not increase in the near term.
Goldman Sachs also highlighted the condition of the Texas crude oil industry after the cold snap. Global oil market supply tightened below 100,000 barrels per day in February due to the severe cold weather in Texas, and Goldman Sachs expects a shortfall of 1.5 million barrels per day in the global oil market this month. Oil production will decrease by 200,000 bpd in March due to infrastructure damage and the impact of the extreme cold weather in Texas.
In addition to supply-side issues, Goldman Sachs cites low inventories, high costs and speculative inflows as the main reasons for higher prices.
“We believe crude oil prices will rally more quickly and above our previous forecast of $65/bbl due to fundamentals, higher marginal costs in the near term, and the ongoing cycle of reflation.”
Goldman Sachs noted that the rebound in oil prices to levels seen prior to the new crown epidemic was also driven by unilateral Saudi production cuts and an improved demand outlook. Finally, the rally was also supported by investors using crude oil to prepare for an inflationary reflationary environment.
Notably, Goldman Sachs turned out to be very bullish on the oil sector as well.
The recent rise in oil prices has also driven up the oil sector’s stock prices. Goldman Sachs analysts pointed out that the oil sector will rise 54% this year as the transportation market recovers, bringing cash returns to investors.
Goldman Sachs expects the sector to see a strong recovery in the second half of 2021 after oil and gas prices plummeted in 2020 due to a sharp drop in demand during the epidemic.
In a report published this week, Goldman Sachs analysts led by Michele Della Vigna wrote.
“Looking ahead to 2021, we see a combination of recovering oil prices, improving downstream margins and cost-cutting as European integrated large oil companies enter a positive earnings cycle.”
Although shares of large European oil companies have risen about 40% since last October’s lows, Goldman Sachs said its bullish oil stocks are still on track to rise about 20% to 50% in price.
It is worth noting that NYMEX New York crude oil March futures are affected by the shift for the month, February 23 at 3:30 a.m. to complete the last trading on the floor, 6:00 a.m. to complete the last trading on the electronic market, please pay attention to the trading venue expiration for the month announcement to control risk. In addition, some trading platforms U.S. oil contract expiration time is usually one day earlier than the official NYMEX, please pay more attention.
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