A stronger than anticipated OPEC-led commitment to extend production cuts will support prices through 2018, according to analysts at Goldman Sachs.
In a research note published late Monday, Goldman lifted its Brent price forecast for next year to $62 a barrel and its WTI projection to $57.5 a barrel. The revisions were up from $58 a barrel and $55 a barrel respectively, CNBC reported.
While the OPEC-led deal “leaves room for an earlier exit than currently scheduled, we now reflect this resolve in our supply forecast, with full compliance for longer and a more modest exit rate,” Goldman analysts said in the research note.
Oil prices have lost ground in the days following OPEC's deal with global producers last week. The 14-member body, Russia and nine other crude producers announced plans to extend their output cuts until the end of 2018.
The move was heavily telegraphed ahead of the decision, but oil producers had earlier indicated they could exit the deal if they feel the market was overheating.
"Of course, risks remain and we see these as skewed to the upside into 2018 on the risk of an over tightening, either because of new disruptions, demand exceeding our optimistic forecast of OPEC letting the stock draw run hot," Goldman analysts said.
However, Goldman said the response of shale oil and other producers to higher prices would likely incentivize OPEC and Russia to "pare back" their now greater capacity, thus leaving risks to prices skewed toward the downside over the long run.
The price of oil collapsed from near $120 a barrel in June 2014 due to weak demand, a strong dollar and booming US shale production. OPEC's reluctance to cut output was also seen as a key reason behind the fall. But, the oil group soon moved to curb production—along with other oil-producing nations—in late 2016.
Brent crude traded at around $62.36 on Tuesday morning, down 0.14%, while US crude was trading at $57.29, down 0.31%.
Cap: Oil prices have lost ground in the days following OPEC's deal with global producers last week.
Add new comment
Read our comment policy before posting your viewpoints