The oil market may be starting to rebalance as U.S. production shows signs of declining and output in Nigeria and Kurdistan is disrupted, potentially shrinking the global oversupply, according to Goldman Sachs Group Inc.
“Storage constraints and a still large oversupply in coming months will continue to keep prices in a trendless and volatile range,” Goldman analysts including Damien Courvalin wrote in a report dated March 11. The bank expects oil to trade between $25–45/bbl in the second quarter of this year, compared with a range of $20–40/bbl in the first three months.
Oil has rallied from a 12-year low last month amid speculation that falling U.S. output will reduce stockpiles, which remain at the most in more than eight decades. While U.S. shale drillers have idled more than two-thirds of the country’s oil rigs in the past 17 months, Goldman expects U.S. supplies to continue to rise through April, potentially sending prices “sharply lower” in the coming weeks.
“As we do not expect growth from OPEC and Russia after 2Q and given our expectation for resilient demand growth, our confidence that stocks will draw in 2016 if prices remain low is rising,” the analysts wrote. The risk of crude storage hitting capacity declines as inventories shrink, they said.
U.S. crude stockpiles rose by 3.9 MMbbl to 521.9 MMbbl last week, the highest level since 1930, and production held near the least since November 2014, according to data from the Energy Information Administration on Wednesday. The nation’s output will drop to its lowest since 2013 next year as battered shale drillers idle rigs to conserve cash, the EIA said in its monthly Short-Term Energy Outlook Tuesday.
Goldman reduced its 2017 oil forecast to $57/bbl from $60 to reflect the smaller required U.S. production growth this year. West Texas Intermediate for April delivery rose as much as $1.12 to $38.96/bbl on the New York Mercantile Exchange, and traded at $38.87 at 6:33 p.m. Singapore time.
Oil prices may have passed their lowest point as shrinking supplies outside OPEC and disruptions inside the group erode the global surplus, the International Energy Agency said Friday. Supplies from non-OPEC producers will decline by 750,000 bopd this year, or 150,000 bopd more than estimated last month, the agency said.
Declines in production have been helped by disruptions in Kurdistan and Nigeria, which are expected to remain curtailed through April, according to Goldman, predicting bigger cuts to non-OPEC output if prices stay below $40/bbl.
Within OPEC, production is expected to be price sensitive this year, with Southern Iraq forecast to pump less as new projects are scaled back unless crude prices move higher to encourage investments, the analysts said. While Saudi Arabia and Russia reached an agreement last month to cap output at peak levels, only a small growth in production was expected this year from both nations, so any freeze accord will have a “negligible impact” on the oil balance, they said.