Investment bank, Goldman Sachs has projected a rise in WTI oil prices to US$57.50 in the first half of 2017 on the back of OPEC cuts, as reduced supply would move the market into deficit and draw down the current large oversupply.
Brent prices are seen peaking at US$59 per barrel in the first half with the cuts implemented. The cuts would also push the oil market to a deficit in the first quarter, Goldman says.
The firm expressed a more optimistic view on the drawdown of oversupply than OPEC, which expects the market to rebalance in the second half, than the International Energy Agency (IEA) which sees the cuts likely moving the market into deficit in the first half by an estimated 600,000 bpd.
In Goldman’s view, the deficit in the first quarter would move the market into backwardation by the summer,ZeroHedge reports.
However, U.S. shale is also expected to respond to higher oil prices, which implies limited upside above the high-$50s, Goldman Sachs says.
Commenting on U.S. production, the bank said: “We continue to believe shale productivity gains allow for substantial US production growth at oil prices of $50-$60/bbl and that E&P companies reaping these production gains are not being sufficiently rewarded.”
The investment bank’s forecasts hinge on whether OPEC and non-OPEC producers that have joined the cuts would deliver on their promises.
Goldman currently sees compliance at 84 percent, in view of the historically poor compliance from countries outside of the Gulf Cooperation Council (GCC), which includes Saudi Arabia, Kuwait, Qatar, Bahrain and Oman. Full compliance means a US$6-per-barrel upside to Goldman’s price projection.
