Goldman Sachs commodity analysts remain bullish on oil prices despite yesterday’s decision by OPEC+ to add another 400,000 bpd to combined production next month.
The bank’s analysts said they see “very clear upside risks”, per a Bloomberg report, adding it expected an average price of $85 for Brent crude in 2023.
The Goldman analysts explained that U.S. shale oil producers would likely continue to stick to their cautious approach to production growth, especially after the latest price drop. At the same time, OPEC has a looming problem with production capacity, which will grow in severity the longer the group sticks to the OPEC+ agreement on output additions.
The investment bank earlier this week said that the plunge that oil took following the news of a new coronavirus variant was excessive, adding that traders “far overshot” the potential impact of the Omicron variant on global oil demand, pricing in a massive 7-million-bpd slump.
“To put this into context, this would represent any of these extreme outcomes: (1) not a single plane flying around the world for three months, or (2) half as intense as the 2Q20 global lockdown, or (3) a world even worst-off than before vaccinations,” Damien Courvalin, Head of Energy Research & Senior Commodity Strategist at Goldman Sachs, wrote in a note.
OPEC+ also believes the price slump that followed the news of Omicron’s emergence was excessive but left the door open at yesterday’s meeting to adjust production if things turned out to be more serious.
This open door to future cuts in output enabled a quick recovery for oil prices that dipped sharply immediately after the OPEC+ meeting, with Brent hitting $66 per barrel at one point. At the time of writing, the international benchmark had recovered to over $71 per barrel, with West Texas Intermediate at $68.42 a barrel.