Confidence in OPEC Inspires Goldman 2018 Oil Price Forecast and Tuesday Crude Gains

Saudi Arabia has raised its January crude prices to Asia. File Image / Pixabay

Even though the sincerest commitments have a knack of becoming undone when it comes to Organization of the Petroleum Exporting Countries (OPEC) politics, belief that the cartel will be successful in its output cutback extension helped boot crude prices upward on Tuesday, with West Texas Intermediate settling up 15 cents to $57.62 per barrel, and Brent rising 41 cents to $62.86.

Goldman Sachs late on Monday raised its forecast for 2018 Brent and WTI to $62 and $57.50 per barrel respectively, a move reportedly influenced by OPEC's resolve in maintaining production cuts; this comes on the heels of a Reuters survey showing that the cartel's November output fell by 300,000 barrels per day - which the agency attributes to strong compliance even though a significant portion of the drop was due to annual oilfield maintenance.

Tuesday's crude price rise was also inspired by expectations that the U.S. Energy Information Agency on Wednesday will show crude stocks to have fallen 3.4 million barrels last week.

Sharing in the optimistic spirit is Saudi Aramco, which has raised its January selling price for Arab Light grade for Asian customers by 40 cents per barrel from the previous month to a premium of $1.65 per barrel, according to sources.

While Goldman gave credit to OPEC for being able to get its members (including Libya and Nigeria) to agree to a cutback extension that would last until the end of 2018, it did not ignore real challenges ahead.

Its analysts stated, "Of course, risks remain and we see these as skewed to the upside into 2018 on the risk of an over tightening, either because of new disruptions, demand exceeding our optimistic forecast of OPEC letting the stock draw run hot."

They added that the response of U.S. shale and other producers to the expected higher prices will cause OPEC and Russia to "pare back" their current greater capacity, thus encouraging prices skewed over the long term towards the downside.

Earlier this week, the strong compliance reported by Reuters with regards to OPEC's November figures consisted partly of ongoing economic woes forcing Venezuela to trim its production, further conflict with Kurdish fighters resulting in a slowdown of output from Iraq, and Angola and Algeria production dropping because of oilfield maintenance.