- Goldman Sachs raised its short-term target for Brent crude from $125 to $140.
- Recovery in Chinese demand and a potential drop in Russian production may further lift prices.
- Goldman: the global oil market remains in a structural deficit and would need much higher prices to regain its balance.
Goldman Sachs this week raised its price target for Brent crude to $140 per barrel from $125 per barrel, citing unresolved structural shortages, says an article published in Oilprice.
Recovering Chinese demands
Per a ZeroHedge report, the investment bank’s commodity head of energy research, Damien Courvalin, noted the brief period of balance in oil earlier this year, when China locked down several cities, the relatively insignificant reduction in Russian exports and the record drawdowns from strategic petroleum reserves.
After that brief period of balance, however, is ending already, the analyst also noted in a note, as Chinese demand is already recovering. On the other hand, Russian oil production could fall by another half a million barrels daily, according to Courvalin.
According to the authors of the note, Brent crude would need to average $135 per barrel in the 12 months beginning July for global stocks of the commodity to recover to normal levels by the end f 2023, Bloomberg reported.
Capacity to increase production
As a result, the global oil market remains in a structural deficit and would need much higher prices to regain its balance, according to the investment bank.
Just how serious this structural deficit appears to be was made very clear last week when, following OPEC+’s decision to add more barrels to its monthly production boost—over 200,000 bpd more barrels—oil prices rose, rather than falling.
One reason for this market reaction was the fact that few OPEC members actually have the spare capacity to increase production by more than they are currently pumping, with several large members struggling to hit their current quotas, let alone boost them.
Another was that demand indeed appears to still be strong despite the rally in prices, suggesting, as Goldman’s Courvalin noted, that prices need to go higher in order to start affecting demand in any meaningful way.
Citi forecast
Citi also revised upwards its oil price forecast this week. A rare bear among bulls, Citi cited the delay in negotiations between the U.S. and Iran on a new nuclear deal as the basis for its revision.
“We continue to see a downward trend to prices after a spiky near-term period, on progressively loosening supply-demand balances,” the bank’s analysts said.
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Source: OilPrice
