The deal between OPEC members to cut production which was reached two weeks ago could have a significant impact at raising and stabilizing crude oil prices in 2017, investment bank, Goldman Sacs has said in a report which was released Friday.
Goldman Sachs revised its crude oil price forecast for the second quarter of 2017 on the back of the decision by OPEC members and other countries to cut production amid growing demand from consumers.
In the report, Goldman Sachs upped its oil price outlook for the second quarter of 2017 to $57.50 a barrel from $55 a barrel for U.S. West Texas Intermediate crude. It also raised its price forecast for international benchmark Brent crude to $59 a barrel from $56.50 a barrel.
Although, the investment bank’s December outlook for U.S. crude remains at $50 a barrel as a potential ramp up in oil production from Libya and a stronger dollar limit the near-term upside, Goldmans says, “ultimately, our work on Saudi Arabia’s fiscal balance suggests that the kingdom has a strong incentive to cut production to achieve a normalization of inventories, even if it requires a larger unilateral cut, consistent with comments last weekend by the energy minister.
Goldman believes that “little evidence” of the cuts until mid to late January, when they will be the “next catalyst for the next large move in prices.”
Given this incentive to cut and in light of the OPEC and non-OPEC cuts announced over the past two weeks, we are slightly raising the 1H17 production declines that we project from the participating producers,” the Goldman analysts wrote.
They expect 84 percent compliance to the announced collective cuts of 1.6 million barrels a day.
“Beyond H1 2017, we expect that the global market will remain balanced, with Brent prices between $55 per barrel and $60 per barrel, on higher production from low-cost producers, a greater shale supply response and the continued ramp up in legacy projects,” analysts from the house added.
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