A group of some of the world’s most powerful oil producers will very likely take further measures to stem a price drop and try to balance the market, according to Goldman Sachs.
OPEC and non-OPEC producers, an influential energy alliance known as OPEC+, will gather in Vienna, Austria on December 4 to decide on the next phase of production policy.
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It comes amid recession fears, weakened crude oil demand in China from renewed Covid-19 shutdowns and as market participants consider the looming impact of a Western price cap on Russian oil.
Jeff Currie, global head of commodities at Goldman Sachs, said on Tuesday that a combination of factors had led the bank to downgrade its oil price forecasts in recent months.
“Primarily it was the dollar. What is the definition of inflation? Too much money chasing … too few goods,” Currie told CNBC’s Steve Sedgwick at Goldman Sachs’ Carbonomics conference in London.
The other factor “has to do with Covid and China — and by the way, it’s a big one,” he continued. “That’s worth more than the OPEC cut for the month of November, let’s put that in perspective. And then the third factor is Russia is just squeezing the market right now before the December 5th deadline for the export ban.”
Currie said the medium-term oil outlook for 2023 was “very positive” and the bank planned to “stick to our guns” with a Brent crude forecast of $110 a barrel for next year.
However, he acknowledged that there is “a lot of uncertainty” going forward.
Oil prices have fallen in recent months. International benchmark Brent Crude oil futures, which stood at $100 a barrel at the end of August, were trading at $85.46 a barrel on Tuesday afternoon in London, up 2.7% for the session.
US West Texas Intermediate Futures, meanwhile, traded at $79.09 a barrel, up more than 2.4%.
Oil demand is heading south in China
“Demand is probably going south again in China given what’s going on,” Currie said.
“I think the key point with China right now is the risk that you have a forced reopening. That means there will be self-imposed shutdowns where people don’t want to go on trains, don’t want to go to work and demand goes further south.”
Currie said OPEC producers will have to discuss whether to accommodate further weakness in demand in China.
“I think it’s very likely we’ll see a cut,” he added.
OPEC+ agreed early on to reduce production by 2 million barrels per day from November. It came despite calls from the US for OPEC+ to pump more to lower fuel prices and help the global economy.
Led by Saudi Arabia and Russia, OPEC+ cut production by a record 10 million barrels per day in early 2020 as demand fell due to the Covid-19 pandemic. The oil cartel has since gradually phased out these record cuts, albeit with several OPEC+ countries struggling to meet their quotas.
OPEC+ has recently hinted that it may impose deeper production cuts to stimulate a recovery in crude oil prices. This signal came despite a report by The Wall Street Journal that suggested a production increase of 500,000 barrels per day was under discussion on 4 December.