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Despite What Some See Are Signs of Massive Correction, Goldman Says Crude Will Exceed $80/bbl This Year
Crude's Thursday rebound from Wednesday's mild losses - which fueled experts' contention that a price correction is forthcoming - has been accompanied by a major bank declaring that far from heading for a downswing, oil will soon surpass $80 per barrel in a market that is already balanced.
West Texas Intermediate settled up $1.07 to $65.80 per barrel, while Brent rose 76 cents to $69.65 per barrel,reportedly on the strength of a Reuters survey showing that compliance with the Organization of the Petroleum Exporting Countries (OPEC) crude cutback strategy rose to 138 percent from 137 percent in December.
But as with so many crude gains and losses, Thursday's performance seems triggered almost by primal reaction rather than sound reasoning: John Kilduff, founding partner at Again Capital, pointed out that the high compliance is not so much an indication that OPEC members are willingly cutting their output but rather "a reminder of the stark decline in output in Venezuelan oil output."
He added, "Saudi and Nigerian output rose last month, but the increasing loss of Venezuelan barrels have reached a point that it is starting to be felt, and it is a grade of crude, relied upon by U.S. refiners that is not easily replaced."
Nonetheless, the high percentages even took precedence over news that U.S. crude production has finally surpassed the 10 million barrel per day mark many analysts regarded with trepidation: the Energy Information Agency said this level of output has not been witnessed since 1970.
While just a day ago experts claimed oil prices are unlikely to advance much beyond $70 this year, Goldman Sachs increased its short-term crude oil price forecast by as much as 33 percent, estimating that Brent will reach $75 per barrel over the next three months and climb to $82.50 within six months.
The bank's previous estimate was for both time periods was $62 per barrel.
Goldman analysts stated in an emailed report, "The rebalancing of the oil market has likely been achieved, six months sooner than we had expected....the decline in excess inventories was fast-forwarded in late 2017 by stellar demand growth, high OPEC compliance, heavy maintenance as well as collapsing Venezuela production."
For the long term, however, Goldman sees Brent heading back to $60 in 2020 due to what it calls the "New Oil Order", which consists of growing production from U.S. shale and OPEC's eventual exit from its output reduction deal.
Goldman's short-term optimism presumably baffles Tom Kloza, global head of energy analysis at the Oil Price Information Service: he told CNBC that crude has entered a danger zone due to "the tremendous speculative bubble and the money on the crude oil side."
He went on to say that and that "All of the demand growth, all of it, is overseas; it's not in the United States.....my sense is that global markets give back some of these very, very robust financial gains."
Kloza believes the average price of Brent will be $59 per barrel this year and a WTI range of $54 to $56, and he added that he "wouldn't be surprised to see prices move below these numbers when there is some fear among the fickle financial funds that drove prices to exuberant highs."
Although Kloza and others describe the current prices as a bubble waiting to burst, J.P. Morgan recently forecast that Brent would average $70 in 2018 and rise toward $78 in the first half of the year.
