Goldman Sachs Predicts $86 Oil as Crude Price Hits Three-month High

Emmanuel Addeh in Abuja

Goldman Sachs yesterday predicted that an ‘all-time high’ demand in oil markets leading to a sizeable deficit was in the offing, projecting that Brent crude will rise from above the over $80 per barrel now to $86 per barrel by year end.

The investment bank noted that it expects the record demand in oil markets to drive crude prices higher in the near term by up to 2 million barrels per day.

“We expect pretty sizable deficits in the second half, with deficits of almost 2 million barrels per day in the third quarter as demand reaches an all-time high,” Goldman’s Head of Oil Research, Daan Struyven, told CNBC.

Nigeria continues to contribute to the global supply curtailment, recording almost 500,000 barrels per day deficit last month, according to the latest data from the Organisation of Petroleum Exporting Countries (OPEC).

While the country’s OPEC production quota remains at 1.74 million bpd, Nigeria was only able to drill roughly 1.25 million bpd in June. Operators have blamed massive oil theft and vandalism for the challenge.

Bloomberg reported that while Struyven acknowledged that United States crude oil production had risen significantly over the past year to 12.7 million barrels per day, he said that pace of growth will slow throughout the rest of 2023.

“We expect US crude supply growth to slow down pretty significantly to a sequential pace of just 200 barrels per day from here,” he said, pointing to the decline in rig counts. That metric, which tallies the number of active oil rigs, is used as an indicator of drilling activity and future output.

The US oil rig count recently hit its lowest level in 16 months, down 15 per cent from its late 2022 peak, a recent Goldman report observed, citing data from Baker Hughes and Haver.

Last week, Baker Hughes reported US oil rigs fell by seven to 530 the lowest since March 2022.

Struyven suggested that the lack of an agreement following the G20 energy ministers’ meeting indicates “very substantial” uncertainty about long-run oil demand.

The Group of 20 energy ministers met in India over the weekend, but left without reaching a consensus on the phasing down of fossil fuels, complicating the transition toward clean energy.

“Key point here for investors is, with the uncertainty about oil demand being so elevated, investors may require a premium to compensate for the elevated risk from such elevated demand uncertainty,” Struyven said.

The International Energy Agency (IEA) in June had predicted that global oil demand was on track to rise by 2.4 million barrels per day in 2023, outpacing the previous year’s 2.3 million barrel per day increase.

Meanwhile, oil prices climbed over 2 per cent to a three-month high on Monday on tightening supply, rising US gasoline demand, hopes for Chinese stimulus measures and technical buying.

In addition, traders noted prices gained due to uncertainty in global markets related to Russia’s bombing of Ukraine’s grain export facilities and multiple missiles apparently launched by North Korea.

Brent futures rose $1.82, or 2.2 per cent, to $82.89 a barrel, while US West Texas Intermediate (WTI) crude rose $1.96, or 2.5 per cent, to $79.03.

That put both benchmarks on track for their highest closes since April 19 and pushed both contracts into technically overbought territory, Reuters said.

Both crude benchmarks have climbed higher over the past four weeks with supplies expected to tighten due to cuts from the OPEC and allies like Russia, a group known as OPEC+.

A majority of economists polled by Reuters still expect this will be the last increase of the current tightening cycle, after data this month showed signs of disinflation, eliminating the need for the Fed to lift rates further.

The rise in the price of crude oil will be good and bad news for Nigeria. While it will earn more from its crude oil revenue, the price the already agitated citizenry buy petrol at the pumps will also likely increase.