Goldman cuts oil price forecast to US$30, predicts supply shortage

Goldman Sachs cut its second- and third-quarter Brent price forecasts to US$30 per barrel, citing the oil price war between Russia and Saudi Arabia and a significant collapse in oil demand due to the new coronavirus that has spread across the world from China.

Oil fell by the most since 1991 today after Saudi Arabia started a price war with Russia by slashing its selling prices and pledging to unleash its pent-up supply onto a market reeling from falling demand because of the virus outbreak, The Guardian reports.

“The aggressive cut to Saudi’s Official Selling Prices and Russia’s reluctance to be pushed into a deal on Friday point to a low probability of an immediate (OPEC+) agreement,” Goldman said in a note dated March 8. A three-year pact between the Organization of the Petroleum Exporting Countries and Russia ended in acrimony on Friday after Moscow refused to support deeper oil cuts and OPEC responded by removing all limits on its own production.
Assuming no change in production policy, Goldman expects a supply deficit to emerge in the fourth quarter of 2020, which would run down excess inventories through 2021.
The bank said the prospect of inventory draws would help prices to rebound to US$40 per barrel by the end of this year.