The rebalancing of the oil market is accelerating, Goldman Sachs said Thursday in a research note, CNBC reported. "While OPEC’s production path remains uncertain, recent fundamental oil data have come in even better than we had expected," Goldman said. "If sustained, these trends would help achieve the normalization in inventories by early next year."
As Kallanish Energy writes in an article "Goldman ‘cautiously optimistic’ on oil prices as supply-demand rebalancing", the investment bank stated that oil prices have rebounded over the past month due to large inventory draws, a slightly falling U.S. rig count and strong demand data, with prices rising above Goldman's September 2017 forecast of $50 a barrel for Brent crude.
U.S., Europe, Singapore and Japan data point to overall inventory declines of 83 million barrels (MMBbl) since March, Kallanish Energy understands. Strong demand has sent spot prices outperforming two-year forward West Texas intermediate prices by $2.40/Bbl over the past month, according t Goldman analyst Damien Courvalin.
Europe, the U.S., India and China were driving up consumption and Goldman expected this strong demand growth to remain in place through the second half of the year. Its forecasts point to sustained draws through the third quarter.
This would cause near-term tightness in the physical oil market, which will push prices into a backwardation pattern this year, which means cargoes for near-term delivery would be priced higher than those for later shipment, according to Goldman.
The investment bank, however, said it remains "cautiously optimistic" on prices from the current level as improvements in supply-demand fundamentals need to be sustained for the market to rally further.
Too large a price recovery now would only increase downside risk to its year-end $55/Bbl forecast as shale production can ramp up rapidly in response to price gains, it said.
