Oil prices could hit $100 this year and rise to $105 per barrel in 2023, on the back of a “surprisingly large deficit” on the oil market now due to the much milder and potentially briefer impact of Omicron on oil demand, Goldman Sachs says.
“Importantly, we are not forecasting Brent trading above $100/bbl on an argument of running out of oil as the shale resources is still large and elastic,” Goldman Sachs strategists including Damien Courvalin and Jeff Currie wrote in a note to clients dated Monday, as carried by ZeroHedge.
Due to gas-to-oil substitution, supply disappointments, and stronger-than-expected demand in Q4 2021, OECD inventories are set to dip by the summer to their lowest levels since 2000, Goldman’s analysts note. Moreover, OPEC+ spare capacity is also set to decline to historically low levels of around 1.2 million barrels per day (bpd).
“At $85/bbl, the market would remain at such critical levels, insufficient buffers relative to demand and supply volatilities, through 2023,” Goldman Sachs said.
As a result of these fundamentals, the bank’s Brent spot forecast is for $105 in 2023 and $96 a barrel in 2022.
Goldman Sachs sees Brent Crude prices at $90 a barrel this quarter, $95 in the second quarter, and $100 a barrel in the third and fourth quarters this year.
On Tuesday, Brent Crude prices hit their highest level since October 2014, trading at over $87.90 at one point early in the day, as the geopolitical risk premium rose with the Houthi attacks on the UAE and the Russia-Ukraine issue, all this amid a tight physical market for crude.
Last month, Goldman Sachs predicted that oil prices could hit $100 in 2023 as demand growth outpaces supply growth.
Earlier this month, Jeff Currie, global head of commodities research at Goldman Sachs, said that commodities overall were set for a supercycle that could potentially last a decade. Goldman’s head of commodities is also very bullish on oil due to low investment in the sector and the fact that only two oil producers in the world—Saudi Arabia and the United Arab Emirates—currently have the capacity and the means to pump more oil than they did in January 2020, just before COVID. Everyone else is struggling, Currie said.
“This market has the potential to get very tight going over the course of next 3-6 months,” he told Bloomberg Television in an interview early this month.