Goldman Sachs says OPEC+’s decision to increase oil supply is a “bad surprise” for the market | Wilnesh News
Goldman Sachs said OPEC+’s detailed plan to increase oil production over the weekend brought a “negative surprise” to a market already facing downward pressure on oil prices. Eight OPEC+ members, led by Saudi Arabia and Russia, agreed on Sunday to gradually phase out voluntary production cuts totaling 2.2 million barrels per day over 12 months starting in October. Under the plan, more than 500,000 barrels per day would return to the market by December, 1.8 million barrels per day by the middle of next year, and production cuts would be fully phased out by September 2025. The news fell more than 3% on Monday, its fourth consecutive session of losses and its worst day since January 8. A four-month low of $78.16. The two benchmarks have now wiped out most of this year’s gains, rising just 3.5% and 1.7% respectively. WTI fell again early Tuesday. The downbeat OPEC+ meeting increased downside risks to Goldman Sachs’ forecast of $75 to $90 a barrel for Brent crude, Dan Struyven, the investment bank’s head of oil research, told clients in a note after Sunday’s meeting. Goldman Sachs said the decision to increase supply comes as global oil inventories have risen more than expected recently, rising by an average of 900,000 barrels per day over the past three months. Bob Yawger, head of energy futures at Mizuho Securities, told clients on Monday that OPEC+’s move to increase supply starting in October was “a bit of a headache.” Jörg said the cartel would increase oil production when refineries are shut down for maintenance, when demand is low after the driving season ends and when the heating season has not yet begun. Yawger told CNBC that “the market structure is weakening” and traders have no reason to buy oil for delivery in November or December due to concerns about falling prices due to increased OPEC+ supply. The OPEC+ plan is difficult to reverse. OPEC+ members said that the increase in production depends on market conditions and may be reversed. Helima Croft, global head of commodity strategy at RBC Capital Markets, told clients in a report on Sunday that the group was unlikely to proceed with the plan if markets deteriorated significantly. But Goldman’s Struvan said OPEC+ would be hard-pressed to back down after the announcement: “If the market performs weaker than OPEC’s optimistic expectations, communication of a surprisingly detailed default plan to lift additional production cuts will Making it more difficult to maintain low production,” analysts said. Andrew Lipow, president of Lipow Oil Associates, said OPEC+ is increasing supply to meet the organization’s forecast that demand will grow by 2.2 million barrels per day in 2024. But it’s far from clear whether OPEC has set the right supply and demand targets. Struyven described OPEC’s forecast as “very optimistic,” with Goldman Sachs forecasting demand growth of 1.5 million barrels per day in 2024. Ryan McKay, senior commodities strategist at TD Securities, said the market is likely to deteriorate in 2025 and the oil market will remain balanced or in small deficits for the time being. But Mackay told clients in a note on Monday that fundamentals “could quickly begin to deteriorate in 2025” as OPEC+ ramps up production, along with output outside the group. JPMorgan Chase also believes that demand growth will slow to 1 million barrels per day in 2025 as the post-epidemic rebound fades, energy efficiency improves and electric vehicles become more popular. Meanwhile, non-OPEC+ supply from large offshore projects in Brazil, Guyana, Norway and Senegal is expected to surge by 1.8 million barrels per day, according to the investment bank. JPMorgan Chase expects Brent crude oil prices to average US$75 per barrel in 2025, down sharply from US$83 in 2024, and by the end of next year, the global benchmark price will fall below US$70 per barrel. Libo said OPEC+ was essentially “trapped in a box.” JP Morgan analysis said that since October 2022, the group has implemented nearly 6 million barrels per day of production cuts, equivalent to about 6% of global oil demand. But Libo said these production cuts have failed to limit U.S. shale oil production. Given all of these challenges, the current likelihood of crude reaching $100 a barrel seems unreasonable, Yawger said, barring a full-scale geopolitical disaster in the Persian Gulf or Arabian Peninsula. “It’s very, very unlikely,” the analyst said.
