Extended Saudi, Russian oil supply cuts pose bullish risks, says Goldman Sachs


(Reuters) – Goldman Sachs Commodities Research said Saudi Arabia and Russia’s extension of voluntary supply cuts posed bullish risks to their crude price forecasts, raising a possibility that Brent could jump as high as $107 a barrel next year.

On Tuesday, Saudi Arabia and Russia extended voluntary cuts to end-2023, pushing oil prices above $90 a barrel. Brent crude was trading around $90.97 at 1822 GMT.

The Saudi cuts were by 1 million barrels per day (bpd) while Russia has cut 300,000 bpd. These cuts were on top of the April cut agreed by several OPEC+ producers running to the end of 2024.

In a note dated Tuesday, Goldman Sachs Commodities Research said that in the first scenario, a roughly 500,000 barrel-per-day miss compared with its own estimates for Saudi output in the fourth quarter posed an estimated $2 per barrel upside risk to its December 2023 forecast of $86 a barrel.

In the second scenario, where nine of the OPEC+ – comprising the Organization of the Petroleum Exporting Countries (OPEC) and allies such as Russia – do not in January 2024 reverse half of their 1.7 million bpd output cuts announced in April, Brent could hit $107 a barrel by December 2024, Goldman said.

However, “this is not our baseline view because we think the producer group is unlikely to pursue prices well above $100/bbl given the strong supply and investment response to the 2022 energy crisis, our high-frequency tracking of U.S. shale, and the political importance of U.S. gasoline prices.”

The bank said the “bullish extension” reflected OPEC+ “exercising assertively its unusually high pricing power”.

It also suggested OPEC+ was unlikely to be in a rush to boost output, and that a potential sale of an additional stake in Saudi Aramco might further incentivize Riyadh to exercise its pricing power.

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