After plunging 6% the day before, the oil market seems to have recovered today. WTI crude oil futures and Brent crude oil futures continued to climb on Tuesday afternoon Beijing time. By the U.S. session, WTI crude oil futures rose by 3% during the day. But near zero, the U.S. and Brent oil fell back, and now the gains have narrowed to less than 2% respectively.
Goldman Sachs expects that the rebound in oil demand this summer will exceed the expectations of OPEC and the IEA. Earlier in early March, Goldman Sachs said Brent crude prices are expected to reach $80 per barrel in the third quarter of this year and that any pullback would be a buying opportunity.
In its latest report, Goldman Sachs remains optimistic about oil demand, despite concerns about demand in Europe and India. The reason for this optimism is that the next two months may see a rare peak in U.S. economic activity in history. Goldman Sachs mentioned that a year ago at this time, the U.S. launched anti-epidemic blockade measures, economic activity plummeted to a freezing point. Now, a year later, the year-over-year growth rate of U.S. economic data will undoubtedly soar under the influence of the low base effect. The emergence of retaliatory spending will make the economic data performance even stronger.
Goldman Sachs therefore believes that the next month or two will see a significant spike in U.S. economic activity as vaccinations advance. Tony Pasquariello, global head of Goldman Sachs’ hedge fund business, noted that April and May will be the peak of U.S. economic activity, and that this peak “may be rare for the rest of our careers.
To keep the oil market balanced against the backdrop of surging demand, Goldman Sachs mentioned that it would require OPEC+ to raise production by 2 million barrels per day for the July-October period. At the just past OPEC+ ministerial meeting, oil producers agreed to increase production by more than 2 million barrels per day through July. According to this Goldman Sachs forecast report, this production increase may only be the beginning.
Notably, Citi also made a similar point in its latest research report. Citi analysts cited the need for OPEC+ to continue increasing production, noting that a phased resumption of production increases could tighten the oil market even more.
“A more gradual recovery in OPEC+ crude supply would mean a further decline in inventories and tighter global markets in the second quarter. As a result of Saudi Arabia’s move to resume production in three tranches starting next month, global inventories are expected to fall by 700,000 bpd more than previously expected. Given seasonal product demand and increased refinery demand for crude oil, the market should be tighter than previously expected.”
Returning to the Goldman Sachs report, analysts believe that the focus of the crude oil aftermarket has shifted to whether Iran will return to the Iran nuclear deal, given that OPEC will then phase out its production cuts. According to Goldman Sachs’ basic expectations, it could take as long as several months for Iran to reach a new nuclear deal, and Iranian oil exports will not fully resume until the summer of 2022, which means Iran may not return to the deal until early 2022.
Specifically on the impact on oil prices, the report said that if Iranian crude oil exports normalize by the end of 2021, Goldman Sachs expects Brent crude oil prices to decrease by $5 to $75 per barrel in 2021 and 2022; but if the U.S. and Iran have not reached an agreement in 2022 and Iranian crude oil exports continue to be sanctioned, oil prices could face upside risks of more than $10.
At the same time, however, Goldman Sachs does not believe that the potential recovery of Iranian oil exports form an external shock to the oil market. Even if Iran returns to the deal sooner than expected, it will not affect Goldman Sachs’ positive view of oil prices relative to market forwards until 2022, on the one hand, because OPEC+ may respond accordingly to this (e.g., by slowing the pace of production increases); on the other hand, the market has widely expected Iran to return to the nuclear deal next year.
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