In a statement Goldman Sachs said, in the coming weeks, it sees oil prices continuing their downward fall and that the “historic yet insufficient” deal by major oil producers to trim output is unlikely to offset the coronavirus-led demand rout.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, have agreed to reduce output by 9.7 million barrels per day (bpd) for May and June 2020 so as to stem a slump in oil prices.
Goldman Sachs sees downside risks to its short-term oil price forecast of around $20 per barrel for Brent, but projected that the global crude benchmark would outperform U.S. oil because OPEC+ producers’ exports would likely fall, freeing up floating storage space.
“Even with core-OPEC members fully complying with the cuts, and 50% compliance by all other countries that have agreed to curb production in May, the voluntary cuts would translate into a reduction of only 4.3 million bpd from first-quarter levels,” said the bank while adding a bigger output cut by G20 nations is also unlikely to be of much help.
“Ultimately, this simply reflects that no voluntary cuts could be large enough to offset the 19 million bpd average April-May demand loss due to the coronavirus.”
However, risks surrounding its 2021 price outlook of $52.50 per barrel for Brent were “skewed squarely to the upside”, since the “violent market rebalancing” will be followed by a sharp rebound once demand picks up again, said Goldman Sachs.