Goldman Sachs sees Brent at $96/b this year and $105/b next year

Quantum Commodity Intelligence - Brent is heading to an average of $96/b this year and $105/b next year amid a squeeze in global fundamentals, which by next summer will see OECD stocks at their lowest level since 2000 and OPEC+ spare capacity at just 1.2 million bpd, Goldman Sachs warned in a trading note.

The world will not run out of oil because shale resources are still large, elastic, and can come onstream at short notice.

But the market will need to price oil at levels that can rebalance the tightening outlook, driving up long-dated Brent prices to $90/b, and pushing spot prices up at the same time, said the investment bank.

Front-month Brent prices have already recovered to around $85/b from the late November meltdown after a wall of worries failed to materialise, such as the size and scale of strategic petroleum releases and widescale demand destruction from the Omicron variant of Covid.

Outside of China, the Omicron hit to gasoline, diesel and jet demand appears smaller than that of the Delta variant and will dissipate by March, according to Goldman.

China's zero-tolerance Covid policy will reduce its demand by 500,000 b/d in the first half of this year.

But the worldwide Omicron hit, sending global demand down 700,000 bpd in January, will end up offset by 250,000 bpd more consumption in the fourth quarter than expected, and more gas to oil switching in the first quarter, to the tune of 300,000 bpd, as well as some supply disruptions.

As a result, the global oil market has been in deficit deeper and longer than expected, with shortages in supply running to 2.4 million bpd in November and 1.4 million bpd in December. There will still be a 1 million bpd shortfall in January.

According to Goldman, global stocks were about 200 million barrels below their December 2019 levels.

The inventory draws will continue through the first quarter, averaging 700,000 bpd, and when the world switches to a surplus in the second quarter, it will be small, running at just 400,000 bpd, which is lower than seasonal norms.

"By summer, this will bring OECD inventories to their lowest level since 2000, with days of demand cover 11% below the 2015-19 (normalized) average," the report stated.

"Importantly, this decline in inventories will occur alongside a decline in excess OPEC+ spare capacity to historically low levels this summer of around 1.2 mbpd."