Oil investors have grown wary of another oil price rally as they have doubts about whether U.S. producers would be able to rein in production growth, Goldman Sachs warned in a note.
The investment bank said that even though tailwinds such as global economic growth projections, the possibility of supply disruptions, and discipline among U.S. producers remains, there were misgivings about the last factor.
“Most importantly, investors remain unconvinced U.S. producer discipline will hold,” Goldman wrote in the note, adding, “That supply growth needs to be constrained voluntarily, even in the face of a more constructive demand outlook still leaves investors more focused on other metals and mining, where there is greater confidence in China policy-driven supply constraints.”
Earlier this month, Goldman joined other major banks in revising its oil price projections considerably, saying it expected Brent crude to break the US$80 barrier within the next six months. Goldman sees the price of Brent reaching $75 per barrel within three months, lifting its short-term oil price projection from the previous $62 forecast.
“The rebalancing of the oil market has likely been achieved, six months sooner than we had expected,” the bank’s analysts said in a report, as carried by Bloomberg.
In its new note, the bank pointed out that despite investors’ wariness about U.S. oil production growth, long-term car sales projections for the Chinese market lent support to oil price optimism, as did forecasts on crude oil demand in the United States.
At the end of last year, Goldman Sachs was more optimistic about the speed of the oil market rebalancing than many experts and other banks, and even OPEC itself. The investment bank expected that the global oil overhang will have cleared by the middle of 2018, accelerating OPEC’s exit from the production cut pact that is currently set to expire at the end of 2018.
By Irina Slav for Oilprice.com
