Goldman Sachs maintains bullish oil outlook stance, sees tightening market

Quantum Commodity Intelligence – US investment bank Goldman Sachs has reiterated its bullish outlook on oil prices in its latest report Tuesday, despite expectations of a production hike from the OPEC+ producer group and the Delta Covid variant potentially denting the demand recovery.

"A 1 million bpd August production hike - leaving 2H 2021 OPEC+ output 0.5 million bpd above our base case - would only represent $2-3/b downside to our $80/bbl Brent forecast, according to our fundamental pricing model.

"This leaves us reiterating our constructive oil price view given the quickly tightening physical market," said Goldman in a client note seen by Quantum.

Goldman added that "much more OPEC+ supply will be needed" to balance the oil market by 2022, forecasting demand to rise by an additional 2.2 million bpd by year-end, leaving a 5 million bpd supply shortfall, well in excess of what Iran (million bpd max) and shale producers can bring online.

Meanwhile, the investment bank acknowledged, "while a large new infection wave could slow the market rebalancing, we expect OPEC+ to remain tactical in its output hikes with downside risks to global supply elsewhere."

Goldman further said that tightening supply/demand fundamentals are running slightly ahead of expectations, with high-frequency mobility and flying data pointing to global demand currently near 97.5 million bpd and with shipping data pointing to a still moderate ramp-up in OPEC+ exports.

"Net, we estimate that the global market is in a 2.3 million bpd deficit currently, with the remaining excess inventories down to 330 million barrels (of which we estimate 150 million barrels is now baseload – and not excess – Chinese inventory). At the current rate of draws, this excess will be gone within 3 months."