Improving global oil demand and faster-than-expected production curtailments from outside the OPEC+ pact are set to push the oil market into deficit next month, according to Goldman Sachs.
Yet, there is little room for an oil price rally in the near term because of the still sizeable oversupply of crude oil and refined products, Goldman Sachs said in a note, carried by Reuters.
On the other hand, demand is improving from April lows and is limiting the downside for oil prices, the investment bank said.
“We believe that the next stage of the oil market rebalancing will be one of range-bound spot prices with the most notable shifts being a decline in implied volatility as well as a continued flattening of the forward curve without long-dated prices rising yet,” Goldman Sachs said in its note.
The Wall Street bank kept its forecasts for oil prices for the summer, with Brent Crude seen at $30 a barrel, and WTI Crude at $28 per barrel, due to the still uncertain pace of global demand recovery.
Early on Thursday, Brent Crude was up 2.8 percent at $30.01 and WTI Crude was trading up 3.04 percent at $26.08, after the EIA reported on Wednesday a surprise crude oil inventory decline of 700,000 barrels for the week to May 8. In gasoline, the EIA reported an inventory draw of 3.5 million barrels, after a draw of 3.2 million for the previous week, which fueled hopes for demand recovery. Gasoline production last week averaged 7.5 million bpd, versus 6.7 million bpd a week earlier.
“US crude oil inventories declined by a modest 745Mbbls over the week, while stocks at Cushing, the WTI delivery hub, fell by a little over 3MMbbls, which is the biggest weekly drawdown at Cushing so far this year,” ING strategists Warren Patterson and Wenyu Yao said on Thursday, commenting on the U.S. inventory report.
By Tsvetana Paraskova for Oilprice.com
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As a result, oil prices could be projected to hit $40-$50 a barrel in the second half of this year and touch $60 early 2021.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London