Oil prices may rebound to $105 on solid demand growth, Goldman Sachs says

US investment bank Goldman Sachs expects Brent crude to trade at $105 a barrel by the fourth quarter of 2023, driven by a “solid” growth in global oil demand.

It expects oil demand to grow by 2.7 million barrels per day this year and said the market would be back in a deficit in the second half of 2023.

This should allow the Opec+ alliance to unwind its October production cut in the second half of the year, said Goldman Sachs.

However, if the market turns out to be softer, then alliance “could stick to its October cuts or cut production even further, given its significant pricing power”.

“Overall, this ‘Opec put’ limits the downside risks to our bullish oil price forecast,” the lender said.

In October, the Opec+ group of oil-producing countries slashed its collective output by 2 million bpd until the end of 2023 on concerns of a global economic slowdown.

The group stuck to its production targets in December amid fears that sanctions on Russian oil exports would significantly reduce global crude supplies.

The impact on oil prices of news surrounding Opec+’s supply has grown “larger” in recent years, suggesting that the group’s pricing power is now much “greater than usual”, the investment bank said.

This has been aided by US shale producers’ inability to increase output and the lack of immediate substitutes to crude oil, Goldman Sachs said.

Meanwhile, crude futures have registered sharp declines since the start of 2023 amid concerns about China and the growing possibility of a recession.

Brent, the benchmark for two thirds of the world’s oil, and West Texas Intermediate, the gauge that tracks US crude, fell by more than 8 per cent last week, their biggest weekly loss in the first seven days of a new year since 2016.

Brent was 0.11 per cent higher at $79.74 a barrel at 1.48pm UAE time on Tuesday while WTI was up 0.35 per cent at $74.89 a barrel.

A stronger dollar, which makes oil more expensive for holders of other currencies, weighed on futures.

The US Dollar Index, a measure of the value of the greenback against a weighted basket of major currencies, was up 0.22 per cent at 103.23 on Tuesday morning. The index is lower by 1.23 per cent since January 1.

Brent rose by as much as 3.8 per cent to a session high of $81.37 on Monday on news of top crude importer China reopening its borders after about three years. It was 1.4 per cent higher at $79.65 at the time of closing.

Source: The National News