Source: Golden Ten Data

Goldman Sachs said in a report released on Sunday that the bank raised its forecast for peak Brent crude oil in the summer of 2024 to $87 per barrel because of the Red Sea interruption, the decline in commercial crude oil inventories in the Organization for Economic Cooperation and Development (OECD) was slightly higher than expected.

Goldman Sachs said, “The decline in the OECD's onshore commercial crude oil inventory has been faster than expected because the situation in the Red Sea has changed ship routes, and offshore crude oil inventories have increased.”

Oil prices fell further after closing last week as traders await new clues about global oil demand in March and beyond.

Over the past two weeks, oil prices have traded in a narrow range of around $3 per barrel. Middle East tension and OPEC+ supply restrictions have offset the impact of increased production outside of OPEC, including the US. It is widely expected that at the meeting at the beginning of next month, OPEC+ will extend the current production reduction agreement until next quarter.

Goldman Sachs believes that the OPEC+ production reduction agreement will continue to be extended in the second quarter of this year to keep the market in a moderate gap. It is expected to be 500,000 b/d in the first quarter and 400,000 b/d in the second quarter. Then, starting in the third quarter, part of the production reduction plan was gradually partially cancelled.

Goldman Sachs analyst Daan Struyven said in the report, “We still expect OPEC+ to extend the production reduction agreement until the second quarter of 2024, and will only gradually and partially reduce the scale of production cuts starting in the third quarter.” Currently, the bank expects oil prices to remain in the range of $70 to $90.

Goldman Sachs said that an increase in idle capacity would enable OPEC+ to offset supply disruptions in most cases, and strong supply growth in non-OPEC countries could almost keep pace with strong growth in global demand. The bank continues to forecast an increase in oil demand of 1.5 million b/d in 2024.

Goldman Sachs predicts that by 2025, the average price of Brent crude oil will drop to $80 per barrel, while continuing to fall below $70 may require a sharp decline in demand and Saudi Arabia's transformation strategy, but based on Saudi economic incentives, this seems unlikely to happen.

In market indicators, time spreads have maintained a bullish spot premium pattern, and US physical crude oil prices have also been strengthening in recent weeks as buyers turned to US crude to avoid disruptions in Red Sea transportation.

In response, Goldman Sachs suggested that investors can increase the time spread of oil futures between August 2024/September 2024 and September 2024, and believes that it is valuable to hedge against tail risks when geopolitical prices soar. Struyven said in the report:

“We profitted on the spread of $70 put options and $80/90 call options on Brent crude oil futures in June 2024, and extended our trading until December 2024. ”

edit/lambor