© Reuters
Investing.com – Goldman Sachs (NYSE: ) has warned its clients that it could climb to a record triple digits by next year if Saudi Arabia and Russia do not ease aggressive supply cuts.
The Wall Street bank had already factored in the possibility of higher oil prices long before Russia and Saudi Arabia announced, earlier this week, that they would extend production cuts through the end of 2023. The announcement lifted Brent crude above $91. per barrel. For the first time in 10 months. Brent crude is the benchmark for global oil prices and is produced in the North Sea.
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Two upside risks
Goldman Sachs predicted it would be at $86 in December and $93 at the end of 2024. But now it sees two “upside risks” to its outlook, CNN reported.
First, Goldman Sachs expects Saudi oil supplies to be 500,000 barrels per day less than previously expected. It is expected that this alone will add two dollars to the price of a barrel of oil.
Secondly, Goldman Sachs warned that some of its assumptions about oil production could be incorrect if the OPEC+ cut continues to be extended.
The bank had expected countries to restore half of the 1.7 million barrels per day (bpd) cut announced in April in January. Now the bank is offering the possibility of extending for a longer period.
And the bank’s analysts explained in a note, according to “CNN”: Given an upward scenario, in which “OPEC +” maintains production cuts and takes effect in full until the end of 2024, and Saudi Arabia increases production only gradually. In this scenario, Brent oil prices are likely to rise to $107 per barrel in December 2024, the bank said.
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Raising oil prices a lot does not benefit OPEC+
Goldman Sachs stressed that this is not the bank’s “fundamental view” because such a strategy could backfire.
Although higher oil prices will help Saudi Arabia balance its budget and Russia finance its war machine, Goldman Sachs said triple-digit oil prices could prompt U.S. shale producers to increase their supply to drive down prices. In addition, higher prices can lead to increased investment in clean energy.
Another reason why OPEC+ does not want $100 worth of oil, according to Goldman Sachs, is the “political importance of US gasoline prices.”
American presidents don’t want to see gasoline prices jump, especially before the elections.
Asked about Russian and Saudi supply cuts on Wednesday, US National Security Adviser Jake Sullivan told reporters that President Joe Biden is focused on “trying to do everything in his toolkit so that he can get lower prices for consumers.”
Meanwhile, US Secretary of State Anthony Blinken commented on Saudi Arabia and Russia announcing their decision to extend the oil production cut for another 3 months, until the end of 2023.
Commenting on the Russian-Saudi decision, Blinken said in a press conference from Kiev, “We will look at this matter carefully in the coming days and weeks to see what results it will actually achieve and what it will reflect on the markets .. The cut can cause an immediate rise in prices, but this may stabilize quickly.” to a lower level.
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2023-09-07 12:17:00
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