Global markets are currently underestimating the demand for oil as more economies open up for trade, says a recent outline by Goldman Sachs that expects Brent to hit $80 per barrel going ahead. Recently, S&P Global Platts, too, had forecast oil prices hitting and staying above $70 a barrel by mid-2021, driven by a more broad-based pickup in economic activity amid widening vaccination rollouts.
Mobility, according to Goldman Sachs too, is hastily increasing in america and Europe, as vaccinations accelerate and lockdowns are lifted, with freight and industrial activity also surging. This developed market (DM) recovery, Goldman Sachs said, is in reality larger than estimates, and is helping offset the recent hit to demand and the likely slower recovery in South Asia and Latin The united states.
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“Despite the global market deficit coming in line with our forecasts in recent months, we under-estimated the weight of such demand and Iran uncertainties, keeping prices trading below our $75 a barrel in the second one quarter of 2021 (Q2-21) reasonable value. With growing evidence of the demand rebound, and imminent clarification on the likelihood of an Iranian return, we now see a clearer path for the next leg higher in oil prices, with the sell-off offering opportunities to position for the rally to $80 a barrel” wrote Jeffrey Currie, global head of commodities research at Goldman Sachs in a recent co-authored note.
Over the last one year, Brent crude oil prices have climbed almost 85 per cent to $66 a barrel now, as the global economy opened for commerce after a stringent lockdown triggered by the Covid-19 pandemic.
Since March, the prices have been volatile because of concerns over the pace and efficacy of vaccination, fresh Covid waves across emerging markets (EMs) and the return of Iranian barrels, with the latter pushing Brent prices down from $70 to $65 a barrel final week.
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“Our up to date base-case is that the recovery in Iranian production will start in October (earlier forecast June 2022), reaching 3.5 million barrels per day (mb/d) after 6 months. OPEC+ will offset any such ramp-up by halting for two months its 0.5 mb/d monthly rate of production increase in the second one half of 2021 (H2-21), leaving the destocking path unchanged for an only modest slowdown in the pace of its excess capacity normalisation,” Currie wrote.
Meantime, those at S&P Global Platts forecast Iran’s crude and condensate exports to grow from approximately 800,000 b/d in April to 1.4 mb/d in December and 2 mb/d by July 2022.
International go back and forth
International go back and forth, according to Goldman Sachs is another key factor that is likely to trigger a demand rise, which in turn will retain oil prices elevated. Then again, shale oil production has been lowered by 0.25 mb/d in H2-21 as production and rig activity have continued to fall short of their expectation.
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“With indications of re-opening international go back and forth, we forecast that global demand will increase by 4.6 mb/d through year-end, with many of the gains expected in the next 3 months. In specific, we continue to expect only limited contribution from EMs out of doors of China, with 75 per cent of our demand recovery coming from DMs and China, jet demand and seasonal cooling in the Middle East,” Goldman Sachs said.
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