Goldman Sachs is now even more bullish on oil, expecting Brent Crude prices to hit $75 a barrel in the third quarter this year, on the back of faster market rebalancing, lower expected inventories, and traders hedging against inflation.

In a note on Sunday, cited by Forexlive, the investment bank’s analysts forecast Brent Crude prices reaching the $70 a barrel mark during the second quarter of this year, and hitting $75 in the third quarter. Goldman Sachs is thus lifting its previous Q2 and Q3 forecasts by $10 per barrel.

“Faster re-balancing during what was expected to be the dark days of winter will be followed by a widening deficit this spring as the ramp-up in OPEC+ production lags our above-consensus demand recovery forecast,” said Goldman Sachs.

“We further believe that this additional rally will be supported by the current repositioning for a reflationary environment with investors turning to oil, buying a lagging real asset that benefits from a stimulus-driven recovery and has demonstrated an unmatched ability to hedge against inflation shocks,” the analysts noted.

Goldman expects the lower inventories will lead to an oil price rally sooner and at higher price levels.

On Monday morning, Brent Crude prices were up by 2 percent at $64.18 at 9:54 a.m. ET, while WTI Crude again moved above the $60 per barrel mark, having risen 2.6 percent at $60.78.

Earlier this month, Goldman Sachs had another bullish message for oil markets, saying in a note that it expected global oil demand to recover to pre-pandemic levels of 100 million bpd by August this year.

According to Goldman, the oil market was in a deficit of 2.3 million bpd in the final quarter of 2020. With supply still tight at the start of 2021, the immediate future for prices is bright despite expectations for a slow demand recovery.

By Tsvetana Paraskova for Oilprice.com (View Full Article Here)

Oil prices rebounded again on Monday, with WTI shooting up more than 3% to over $61 per barrel by noon ET.

Oil prices spiked to 13-month highs last week after the Texas Freeze, but prices sagged toward the latter part of the week. But on Monday, a new price rally began, with the price of WTI spiking $1.81 per barrel to $61.05. Brent shot up by $1.73 to $64.64.

The price hike comes shortly after Goldman Sachs forecast that oil prices would climb into the $70s over the next few months, and after it became clear that U.S. oil production and refineries will take a bit of time to resume their normal level of output after the Texas Freeze knocked out oil refineries and oil production.

One would think that the market’s enthusiasm for oil would be somewhat tempered given the moderately bearish news that OPEC+ heavyweights Saudi Arabia and Russia might be on the cusp of a disagreement again over the oil output agreement that the group is set to soon discuss.

As usual, Russia is eager to increase oil production, while Saudi Arabia believes a more cautious approach is warranted.

According to Goldman Sachs, Brent will hit $70 per barrel in Q2—this is a $10 increase from from its previous estimate.

The Texas Freeze knocked out as much as 4 million bpd of U.S. oil production and 6 million bpd of refining capacity last week, IHS Markit said. The production outages have created a tighter supply situation that has been absent for most of the pandemic.

And the market is latching onto that reality, sending WTI prices north of $61.

Oil prices are still below last week’s levels, but by just pennies.

By Julianne Geiger for Oilprice.com (Read full article here)

Oil prices could go as high as $100 a barrel next year on the back of “very easy monetary policy” and reflation trade, Amrita Sen, chief oil analyst at Energy Aspects, told Bloomberg in an interview.

“It’s a futures market, we always discount stuff that’s going to happen in the future, now. That’s why prices are rallying right now,” the analyst said on the Bloomberg Surveillance program.

“We’ve always called for $80 plus oil in 2022. Maybe that is $100 now given how much liquidity there is in the system. I wouldn’t rule that out,” Sen noted.

On Monday, Brent Crude prices hit $60 a barrel, rising above that threshold for the first time since the start of the COVID-19 pandemic early last year.

In terms of prompt fundamentals, Energy Aspects’ Sen thinks, like some other analysts, that the market has gotten ahead of itself, “because right now demand is still relatively weak.”

However, the second half of the year does look much, much healthier in terms of demand, the analyst added.

Like other analysts and Torbjörn Törnqvist, chief executive at one of the world’s largest independent oil traders, Gunvor, Sen also sees headwinds to price gains at oil above $60, as U.S. production is set to begin rising.

According to Energy Aspects, U.S. oil output will not go back to pre-COVID levels any time soon, if ever, because producers are more focused on shareholder returns right now.

Last week, Törnqvist told Bloomberg that oil prices were unlikely to soar much above the $60 per barrel mark, considering that this price level would incentivize a lot of oil supply, including from the United States.

“We are at price levels which will look increasingly attractive to producers, so we would expect to see some producer flows coming into the market, which should provide some resistance to prices,” ING strategists Warren Patterson and Wenyu Yao said on Tuesday.

“Looking at the WTI forward curve, while the curve is in backwardation, prices all the way through to the end of 2022 are above US$50/bbl,” they said.

By Tsvetana Paraskova for Oilprice.com (View full article here)

The weather doesn’t always follow traders’ hopes and expectations. However, it sometimes exceeds them. December and January saw a surge in natural gas prices in Asia as a cold spell caused a boom in electricity and heating demand. Now, U.S. gas prices are also enjoying an improvement, albeit a lot more moderate than the $30 per mmBtu the Asian spot market saw last month. The front-month Henry Hub contract for natural gas topped $3 this week after the first Nor’easter for the year brought snow and low temperatures to the U.S. Northeast. What’s more, the cold spell may last a while, keeping prices higher.

“The extension of cooler weather forecasts today underscores the weather volatility’s current capacity to drive rising demand for natural gas,” said gas consultancy Gelber & Associates, as quoted by Investing.com.

“Nearly 75-80 Bcf of natural gas demand is expected to have been added as a result, magnified by much of the additional cold falling during the week. The forward curve continues to shift along with March, adding a few cents through the end of next winter.”

Additional demand is always good news in a market that has been recently struggling with oversupply. This improvement in demand is also evident in recent draws in the U.S. natural gas inventory, likely to be extended this week.

“The unseasonably cold weather is expected to arrive this weekend and stock around through next week… The polar blast could mark some of the coldest temperatures seen this winter in much of the U.S.” Wood Mac analyst Mark Spangler said in a note to clients this Monday.

Related: Oil Prices Continue To Rise As Bullish News Mounts

A week’s worth of cold weather will be good for gas prices, but the rally will only last as long as the cold spell lasts. The good news for gas is that demand for it is set to rebound beyond the winter price boost, too.

The International Energy Agency said in its quarterly gas market report that it expected natural gas demand was about to start improving and it would rebound to pre-pandemic levels as soon as this year, much faster than oil.

In 2020, global natural gas demand dropped by 2.5 percent, which although a much smaller drop than the one experienced by oil, was the biggest demand drop for gas on record. This year, according to the IEA, gas demand will gain 2.8 percent as the world recovers from the pandemic, essentially returning to growth mode.

Tighter supply of natural gas will also help. In the United States, specifically, lower oil production prompted by the pandemic also meant lower gas production as a lot of the gas the U.S. produces is associated gas from oil wells. With oil output still lower than before that pandemic, so is gas output.

Indeed, based on this production trend, energy analyst Robert Rapier recently forecast the average gas price this year will be 25 percent higher than last year’s, at $2.50 per mmBtu.

As for global gas prices, the recovery will be uneven, reflecting the uneven recovery of economies in different parts of the world, the IEA said in its report in late January. This echoes demand projections for pretty much every commodity, with Asia expected to lead the way in demand recovery while other regions lag behind.

Whatever the pace of gas demand recovery and the uncertainty that surrounds the pandemic, what with all the new variants that have now made an appearance in the U.S. as well, gas is set for a better year than oil. LNG, in particular, will enjoy stronger demand, according to analysts, as long as Covid-19 lets up, especially in Europe.

By Irina Slav for Oilprice.com (View full article HERE)

Did the ‘Reddit-Raiders’ suddenly shift their crosshairs onto the energy complex?

The last few days have seen WTI Crude surge over 6%…

…topping $55 this morning for the first time since Jan 2020.

Source: Bloomberg

The catalysts for the move is uncertain amid mixed data from OPEC – on the bullish side, compliance with planned cuts was extremely high; on the bearish side, the cartel cuts its oil demand growth outlook to 5.6mm b/d (down from previous 5.9mm b/d), but back on the bullish side, the Saudis and their friends see the oil market in deficit by Q2.Related: Tesla’s 20 Million EV Ambition Faces Huge Mining Challenge

Citing an internal OPEC document, Reuters reported on Tuesday that the organization lowered its oil demand growth forecast to 5.6 million barrels per day (bpd) for 2021 from 5.9 million bpd in January’s report. Additional takeaways:

“OPEC+ panel sees global oil demand at 97.9 million bpd in December 2021 under the base scenario.”

“Under the base case scenario, the oil market deficit is expected to reach a peak of 2 mln bpd in May.”

“Under the alternate, lower demand scenario, market is expected to flip into 600,000 bpd surplus in April 2021 and 100,000 bpd surplus in December 2021.”

And on the other side of the ledger, OilPrice.com’s Irina Slav notes that OPEC+ members complied almost completely with their production cut quotas last month, an unnamed source from the extended cartel told Bloomberg.

At 99 percent, according to the source, the compliance level was based on preliminary estimated, to be reviewed tomorrow by the Joint Technical Committee of the group.

OPEC+ agreed to cut 7.2 million bpd in combined production in January, in what was widely seen as a compromise decision for aggressive cutters like Saudi Arabia and more reluctant ones like Russia, which proposed adding 500,000 bpd to the group’s production each month between January and April. For February and March, the cartel agreed to keep production cuts at 7.2 million bpd.

This may change after tomorrow’s meeting but is not very likely. Global demand has been on the mend but so has supply. Therefore, chances are that OPEC+ will stick to its current production cut levels, with Saudi Arabia unilaterally cutting an additional 1 million bpd to keep prices higher.

Meanwhile, however, OPEC’s overall oil production rose in January, according to a Reuters survey, for the seventh month in a row. That’s despite Saudi Arabia’s deep cuts and Iraq’s compensatory output reductions that the country said it would implement in January and February to make up for its non-compliance last year.

“The increase is natural with the higher production ceiling from January,” one OPEC delegate told Reuters.

Interestingly enough, the biggest additions to OPEC’s total for January came from Saudi Arabia and Iraq despite their commitments, the survey found. The third-largest output growth came from Iran, which is ramping up both production and exports in anticipation of the Biden administration lifting sanctions.

 

Meanwhile, U.S. producers are being cautious. Production is still around 11 million bpd as drillers wait for higher prices for longer before they start ramping up. A set of Biden executive orders, meanwhile, have restricted new drilling, which would eventually have a positive effect on prices, and we may see the start of a production ramp-up later this year.

All in all, slowly but surely, the oil market is crawling towards rebalancing. It won’t happen quickly, and there will almost certainly be setbacks amid the emergence of new coronavirus variants that medical experts warn appear to be more highly contagious and possibly more deadly than the original strain. Yet if OPEC+ sticks with its cuts and vaccinations progress, despite the challenges, the world—and oil demand—will start to return to normal before this year’s end.

By Zerohedge.com

Goldman Sachs had another bullish message for oil markets this week, saying in a note that it expected global oil demand to recover to pre-pandemic levels of 100 million bpd by August this year.

According to Goldman, the oil market was in a deficit of 2.3 million bpd in the final quarter of 2020. With supply still tight at the start of 2021, the immediate future for prices is bright despite expectations for a slow demand recovery.

Even so, supply will grow this year, Goldman Sachs also noted, with the deficit narrowing to 900,000 bpd during the first half of the year. That’s up from an earlier projection of a deficit of 500,000 bpd.

At the end of 2020, Goldman Sachs’s commodities chief Jeffrey Currie said he expected Brent crude to rise to $65 a barrel this year, citing structural underinvestment in the industry.

All markets except wheat, Currie noted in late December, are in a deficit, and this is certainly bullish for prices. But what he calls structural underinvestment also has its part to play for the future of prices. This is particularly true for oil, where the underinvestment is not just motivated by the price rout, but by the shift towards renewable energy investments.

Last month, the bank praised the $1.9-trillion stimulus package proposed by President Joe Biden, saying it could boost U.S. oil demand by 200,000 bpd. Among the bullish factors for oil, the bank also listed Biden’s moratorium on federal land drilling, the revocation of the permit for Keystone XL, and the moratorium on all oil and gas leasing in the Arctic National Wildlife Refuge.

These factors will likely contribute to what Goldman expects to be a slow increase in non-OPEC supply, which will in turn benefit prices while demand recovers, however slowly this may happen now that new strains of the coronavirus are emerging.

By Charles Kennedy for Oilprice.com (View Full Article here)