From Tsvetana Paraskova: One of the biggest investment banks is one of the most bullish voices in predicting the state of the oil market next year. Goldman Sachs is more optimistic about the speed of the oil market rebalancing than many experts and other banks, and OPEC itself.
Goldman Sachs expects that the global oil overhang will have cleared by the middle of 2018, accelerating OPEC’s exit from the production cut pact that is currently set to expire at the end of 2018.
“The oil re-balancing continued its progress through November,” thanks to factors including “stellar” oil demand growth, Goldman Sachs analysts said in a note this week, as carried by Bloomberg.
“Global inventories will have re-balanced by mid-2018, leading to a gradual exit from the cuts,” Goldman’s analysts noted.
The U.S. investment bank also expects backwardation–the market structure of near-term oil futures trading at a premium to longer-dated contracts–to strengthen in the second quarter of 2018 when OECD oil inventories will drop to their five-year average.
Backwardation, a sign of a tighter oil market, was one of OPEC’s goals in the production cut deal.
Commercial oil stocks in the OECD fell further in November, and the difference to the latest five-year average has been reduced by around 200 million barrels since the beginning of 2017, OPEC Secretary General Mohammad Barkindo said last week. And this week, OPEC and its non-OPEC partners in the deal boasted “an impressive highest conformity level of 122 per cent.”
However, even OPEC is less optimistic than Goldman about the oil market rebalancing by mid-2018. In its Monthly Oil Market Report, OPEC said last week that it expects excess global inventories to arrive “at a balanced market by late 2018.”
Just two days before OPEC and allies agreed to extend the production cut pact to the end of 2018, Goldman Sachs had warned that a deal is far from certain. But after OPEC announced the extension, Goldman revised up its oil price forecasts for 2018, to $62 from $58 a barrel for Brent, and to $57.50 from $55 a barrel for WTI.
The production cut pact “leaves room for an earlier exit than currently scheduled, we now reflect this resolve in our supply forecast, with full compliance for longer and a more modest exit rate,” Goldman said at the beginning of December.
At the end of December, the bank continues to believe that there may be an early exit from the cuts, and kept its $62 per barrel Brent forecast for 2018.