Goldman Sachs analysts are downgrading oil in their forecast going into the second half of the year.’
The investment bank dropped its price target for the end of the year on Brent (BZ-F) to $86 per barrel, a decline from the prior forecast of $95. West Texas Intermediate (CL=F) saw its prediction downgraded to cost $81 per barrel, from the previous prediction of $89.
In a note to investors, Callum Bruce and a team of analysts wrote, “Supply beats drive the bulk of the softening in this update.”
Analysts note that oil from supposedly banned nations like Russia and Iran has been finding its way to the market in spite of Western sanctions. The analysts noted, “significant supply beats from Iran and Russia have driven speculative positioning to near record-lows.”
Last year, China’s Covid policies as well as fears of a global recession, and the US’s record Strategic Petroleum Reserve release last year, all weighed on the pricing over the last 12 months. One year ago, Brent crude prices were sitting at roughly $120 per barrel, however today they are just over $71 per barrel.
Bruce wrote, “The extra Saudi cut and our expectation that OPEC+ will extend half of its April voluntary cut in 2024 will likely only partly offset these bearish shocks, because we are also nudging down demand modestly on petrochemical weakness.”
In the last two months, prices have deteriorated in spite of the surprise cut by OPEC in April, and Saudi Arabia’s unexpected announcement it would cut its production output by another 1 million barrels per day beginning in July.
Goldman’s bullish outlook for crude returns, however, for next year’s forecast.
Bruce wrote, “While increased oil supply reduces the upside for oil, we remain relatively constructive as our forecast that rising EM demand, slowing US supply, and OPEC cuts lift Brent to $93/bbl (vs. $100 previously) by May 2024, sits 25% above the forwards.”
