Goldman raises Brent forecast, sees oil at $80 in third quarter

NEW YORK (Reuters): Goldman Sachs Commodities Research raised its Brent forecast for second and third quarter by $5 a barrel after OPEC and its allies kept the deal unchanged, and said ‘discipline of shale producers’ is likely behind the group’s slower output increase.

The Wall Street bank now sees Brent prices at $75 a barrel in second quarter and at $80 a barrel in third quarter of 2021, it said in a note.

US shale producers have quickly responded to oil price gains in recent years, winning market share as Saudi Arabia and other major producers have cut output, although they held back on boosting production since pandemic-led demand destruction last year.

The Organization of the Petroleum Exporting Countries and its allies (OPEC+) on Thursday agreed to extend most oil production cuts until April, after deciding that the demand recovery from the coronavirus pandemic was still fragile.

“OPEC’s supply strategy is working because of its unexpectedness and suddenness,” Goldman said.

“We believe it is now clear that OPEC+ is in fact pursuing a tight oil market strategy, with our updated supply-demand balance pointing to OECD (inventories) falling to their lowest level since 2014 by the end of this year.”

The bank lowered its OPEC+ production forecast by 0.9 million (bpd) over the next six months, and said shale, Iran and non-OPEC supplies are likely to remain highly inelastic to prices until the second half of 2021, allowing OPEC+ to quickly rebalance the oil market.

“Key will be the potential shale supply response, although the latest earnings season suggests investors are still a long way away from rewarding growth,” the bank said, and raised its 2022 US shale production forecast by 0.3 million bpd.