Goldman Sachs says crude oil production cuts by OPEC could result in a significantly larger deficit in the market, driving a rally in prices to $100 per barrel by April 2024, and raising the group’s pricing power.
OPEC+, which groups the Organization of the Petroleum Exporting Countries with Russia and other allies, agreed on Sunday to widen oil supply cuts to 3.66 million barrels per day (bpd), which helped push up prices above $86 per barrel.
Goldman said it sees “elevated OPEC pricing power – the ability to raise prices without significantly hurting its demand – as the key economic driver”, and estimates that the production cut will raise OPEC+ revenues as the boost to prices more than offsets the drop in volumes.
Brent crude futures were trading at $85.31 a barrel on Tuesday.
Goldman also said it expects a nearly 90% implementation rate for the 1.66 million bpd production cut plan, reasoning that countries that announced an additional cut have a strong compliance track record, and had implemented nearly 90% of the October 2022 cut by January 2023.
The bank further reiterated its view that the market will return to sustained deficits from June onward given rapid emerging market growth, falling Russia supply, and sluggish U.S. supply.
Goldman on Monday had raised its price forecast for Brent for December 2023 by $5 to $95 a barrel.
Barclays also said it sees a $5 upside to its $92 per barrel price target, while Jefferies noted Brent prices could still end the year at $96 per barrel.