Despite the non-farm data crash last week, coupled with the gradual withdrawal of OPEC+ key member countries from the "voluntary production cut" plan, oil prices have held up under heavy pressure this week, sweeping away the haze of three weeks of consecutive declines overnight, with WTI crude oil up over 3% and Brent crude oil returning to the $80 mark!

What happened exactly?

Goldman Sachs said in its latest research report that as the summer driving season approaches, the surge in fuel demand may create a "significant" shortage of crude oil supply, reaching 1.3 million barrels per day in the third quarter, which may result in Brent crude oil prices rising to $86 per barrel. Looking ahead to the whole year, Goldman Sachs drew a "upper and lower boundary line" for oil prices, saying that after a sharp rise in the first quarter, Brent crude oil has fallen to $80 per barrel as geopolitical risk premiums recede. On that basis, they insist that oil prices will remain in the range of $75-90 per barrel in 2024.

"Lower boundary" of $75: Strong summer demand, China-US inventory replenishment, return of financial demand, OPEC "hold" the bottom line. Goldman Sachs wrote that the data showed that the US summer tourist season started well this year, with record-high air passenger traffic on American Airlines and strong aviation fuel demand in July, leading to an expected high of 1.3 million barrels per day of crude oil supply deficit in the third quarter. In addition, when the oil price falls, demand from China and the US strategic oil reserves (SPR) tends to increase. Typically, when Brent crude oil falls below $85 per barrel, China seizes the opportunity to replenish. In addition, with the recent drop in diesel prices below Asia's natural gas prices, some transportation trucks may switch from natural gas to diesel. Regarding US Strategic Petroleum Reserves (SPR), the US Department of Energy announced last week that they will bid for 6 million barrels of crude oil from September to December, confirming that falling oil prices will stimulate replenishment behavior. Goldman Sachs analyzed that for every $10 drop in WTI crude oil, the average monthly replenishment of strategic oil reserves increases by about 1.5 million barrels.

3. Return of financial demand. falling oil prices may help speculative positions, which are currently very low, return to normal levels and maintain oil prices. Within six months, if the net managed money positions in crude oil and related products can recover to the average level since 2022, financial demand will increase by 1.5 million barrels/day.

1. The US summer driving season is coming.

Goldman Sachs wrote that data showed that the US summer travel season started well this year, with record-high passenger traffic on American Airlines and strong aviation fuel demand in July, leading to an expected high of 1.3 million barrels per day of crude oil supply deficit in the third quarter.

2. With the decline in oil prices, China and the US will take the opportunity to replenish their inventory.

Goldman Sachs said that when the oil price falls, demand from China and the US strategic oil reserves (SPR) tends to increase. Typically, when Brent crude oil falls below $85 per barrel, China seizes the opportunity to replenish. In addition, with the recent drop in diesel prices below Asia's natural gas prices, some transportation trucks may switch from natural gas to diesel.

Regarding US Strategic Petroleum Reserves (SPR), the US Department of Energy announced last week that they will bid for 6 million barrels of crude oil from September to December, confirming that falling oil prices will stimulate replenishment behavior. Goldman Sachs analyzed that for every $10 drop in WTI crude oil, the average monthly replenishment of strategic oil reserves increases by about 1.5 million barrels.

3. The return of financial demand.

Falling oil prices may help speculative positions, which are currently very low, return to normal levels and maintain oil prices. Within six months, if the net managed money positions in crude oil and related products can recover to the average level since 2022, financial demand will increase by 1.5 million barrels/day.

4. OPEC "hold" the bottom line.

Although eight key OPEC+ member countries will gradually withdraw from the "voluntary production cut" plan, OPEC+ has reached a preliminary agreement to extend its output cut policy through 2025, further limiting the possibility of a sharp drop in oil prices. In addition, falling prices will affect oil supplies and "reverse" oil prices. Goldman Sachs suggests that for every 10% drop in oil prices, US crude oil supplies will be reduced by about 1%. Moreover, the recent drop in oil prices has already caused the number of US oil rigs to fall to its lowest level since January 2022.

"Upper boundary" of $90: the key OPEC+ countries withdraw from the "voluntary production cut" plan, and inventories exceed expectations.

Goldman Sachs believes that assuming no geopolitical risk impacts on crude oil supplies, the upper price limit for Brent crude oil this year is expected to be $90 per barrel.

Considering that OPEC has declared its dependence on data and stated that once the market begins to tighten, it will begin to gradually withdraw from the "voluntary production cut" plan from the fourth quarter, Goldman Sachs believes that this is bearish for oil prices:

The End.

At the same time, OPEC+ plans to curb oversupply by reducing production, but before 2025, eight countries including Saudi Arabia, Iraq, and Russia may gradually increase their output.

In addition, crude oil inventories are not very "cooperative." Goldman Sachs said that commercial crude oil inventories in the Organization for Economic Cooperation and Development (OECD) exceeded their expectations.

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