Goldman maintains $80/b summer Brent forecast after OPEC+ fallout

Quantum Commodity Intelligence – US investment bank Goldman Sachs has reiterated its $80/barrel price forecast for this summer following the breakup of OPEC+ talks without an agreement for a supply increase starting in August.

“While this lack of agreement has introduced uncertainty into the OPEC+ production path, our base-case remains for a gradual increase in production through 1Q22 that would ultimately help meet their preferences, with Brent prices at $80/b this summer,” said the investment bank in a client note seen by Quantum Tuesday.

However, Goldman said the differences between both parties “seem surmountable” as they agree on ramping-up production into year-end, with the still high uncertainty for 2022 oil balances making a pledge to any long-term commitment unnecessary today.

The producer group had agreed in principle to adopt the JMMC's recommendation for a 400,000 bpd -increase each month until year-end, plus extend the current OPEC+ agreement from April 2022 to year end.

But the UAE said it will only agree to the monthly hikes from August on the condition its baseline production level would be revised upwards.

“While the threat of a new OPEC+ price war is no longer negligible, its negative price impact would be dampened by a global market starting in a 2.5 million bpd deficit and in need of an extra 5 million bpd in production by year-end to avoid critically low inventories,” added Goldman.

“Given our rising demand and slow global production recovery forecasts as well as the decline in productive capacity that we expect for many OPEC+ producers due to under-investment, such a path would further allow the UAE, Saudi and Russia to bring production to or near quarterly average records, helping meet all their preferences.”

However, Goldman also noted that the recent stalemate has introduced the potential for alternate OPEC+ production paths and, “mapping these into our pricing model point to (around) $3/b upside to our forecast under a delayed production ramp-up scenario and instead $9/b downside, relative to our forecast in an all-out price war and higher quota scenario.”