Brent crude will need to average $135 a barrel in the 12 months from July, up $10 from the bank’s previous forecast, for global inventories to normalize by late 2023, analysts including Damien Courvalin and Jeffrey Currie said in a note dated June 6. The global benchmark was trading at about $120 on Tuesday, and has risen more than 50% this year.
Recovering demand after the pandemic and sanctions on Russia over its invasion of Ukraine, which disrupted global flows of energy, lifted oil prices and led nations to tap strategic reserves to ease the pain on consumers. Yet commodities are continuing to rally and further demand destruction is needed to rebalance the market next year along with a slowdown in global growth and increased production from OPEC members including Saudi Arabia and Iran, according to Goldman.
“The negative global growth impulse remains insufficient to rebalance inventories at current prices,” the Goldman analysts said. “Oil prices need to rally further to normalize the unsustainably low levels of global oil inventories.”
READ: Goldman’s Currie Sees Oil Market Getting Significantly Tighter
Global inventories are 75 million barrels lower than previously expected and the global deficit is estimated to be 400,000 barrels a day on average in the third quarter, the bank said. Although the loss in Russian production has been smaller than expected, the nation’s output is set to drop further while the rebound in Chinese demand is probably bringing back the market back into a deficit, they said.
Russian production will fall further on western import bans, with output expected to decline 1 million barrels a day by year-end from 10.8 million barrels a day in May, according to the bank. Large volumes of its crude will be redirected to mostly Asian consumers, it said.
While demand in China is recovering, the bank remains cautious on its demand expectations and predicts that rolling lockdowns will be a headwind to mobility this year.