Goldman Sachs Predicts No Reversal of OPEC+ Production Cuts
Goldman Sachs analysts revise their outlook on OPEC+ production cuts
Goldman Sachs analysts announced Thursday a revision in their expectations regarding the OPEC+ alliance, indicating that they no longer anticipate a partial reversal of recent voluntary production cuts in June.
Reasons Behind the Revised Outlook
In their updated analysis, the Wall Street giant pointed to three primary factors influencing this shift in expectations.
-
Exceeding Inventory Data Expectations
Recent inventory data surpassed initial expectations, leading their model to estimate only a 37% likelihood of a production increase in June.
-
Compliance with Production Cuts
Recent compliance data on production cuts suggests that extending Saudi Arabia’s 1 million barrel per day reduction, as part of the broader 2.2 million barrel per day cut, would optimize the country's short-term oil profits.
-
Elevated Interest Rates
Elevated interest rates have emphasized the significance of short-term profits to fund Saudi Arabia's ambitious investment plans, as noted by analysts.
Implications and Outlook
Goldman Sachs views the mechanical effect of reduced OPEC+ production as positive for spot oil prices compared to long-dated prices. However, they maintain their projection that Brent crude will average $82 per barrel in 2025. They emphasize that OPEC’s decision reflects a response to bearish inventory levels, and high spare capacity will likely limit long-dated oil prices.
Geopolitical and Market Risks
The analysts also highlight geopolitical impediments to OPEC’s ability to deploy spare capacity as a key upside tail risk to oil prices. Conversely, potential negative effects of high spare capacity on OPEC cohesion pose some downside tail risks.
