Goldman Projection Cuts Send Oil Prices Plummeting Ahead Of Fed Meeting

Meanwhile, the Saudis express their desire to court China: File Image/Oixabay

Reports of rising global supply caused  a significant drop in oil prices on Monday, with West Texas Intermediate plummeting more than 4 percent and analysts fearing more losses as events later this week unfold.

Goldman Sachs kicked off the rout by cutting its oil price forecasts to $86 per barrel from $95 for Brent and $81 for WTI compared with earlier projections of $89.

The bank explained its reasoning behind the nearly 10 percent slash by writing, "Russian supply has nearly fully recovered despite the decision by many companies to stop buying Russian barrels, and [effectively] a ban of Western financial and logistical services."

Goldman added that this, combined with extra supply coming from Iran and Venezuela, warranted a "softening" of its projections.

Matt Smith, analyst at Kpler, said, "Goldman capitulating on their bullish price forecast appears to have been the catalyst to kickstart selling today."

All of this took place in advance of Wednesday's meeting of the US Federal Reserve, and although the bank is not expected to enact any further rate hikes this month its past hikes have strengthened the dollar, which in turn weighs on crude prices because it makes commodities denominated in U.S. currency more expensive for holders of other currencies.

Brent on Monday fell $2.95, or 3.9 percent, to settle at $71.84 per barrel, the lowest since Dec. 2021; WTI dropped $3.05, or 4.4 percent, to settle at $67.12 per barrel.

Rebecca Babin, a senior energy trader at CIBC Private Wealth, said, "Beyond the fact that a vocal crude bull cut their crude forecast again, physical market indicators also are shaking confidence of bulls expecting the market to shift from a surplus to a deficit in the coming months.

"Time spreads, which are the holy grail for traders assessing supply and demand dynamics, continue to deteriorate."

Still, hedge funds boosted bullish bets on Brent and WTI in the week ended June 6, and while the current analytical vogue is to focus on inflationary impacts, it must also be noted that  summer demand is looming and may prompt a short of attention more on fundamentals.

In other oil related news, prince Abdulaziz bin Salman, energy minister for Saudi Arabia, told media that his kingdom is seeking stronger corporation, not competition, with China on trade investments and energy flows.

Abdulaziz added that he believes t China's oil demand is still growing, and it is a "pie" Saudi Arabia is keen on capturing.