The markets underestimate the demand for oil; see Brent at $ 80: Goldman Sachs

Global markets are currently underestimating demand for oil as more economies open up for business, according to a recent report from Goldman Sachs which expects Brent to hit $ 80 a barrel at the to come up. Recently, S&P Global Platts also predicted that oil prices would reach and remain above $ 70 per barrel by mid-2021, due to a more widespread recovery in economic activity amid a backdrop of expansion of vaccination deployments.

Mobility, according to Goldman Sachs as well, is increasing rapidly in the United States and Europe, as vaccinations accelerate and blockages are lifted, freight and industrial activity also increasing. This recovery in developed markets (DM), Goldman Sachs said, is actually larger than estimates and is helping to offset the recent impact of demand and the likely slower recovery in South Asia and Latin America.

READ ALSO: Platts Reduces India’s Oil Demand By 28% In 2021; sees the gross exceed $ 70

“Despite the global market deficit in line with our forecasts in recent months, we have underestimated the weight of this demand and Iranian uncertainties, keeping prices trading below our fair value of $ 75 per barrel in the second quarter. 2021 (Q2-21). With increasing evidence of a rebound in demand and looming clarification on the likelihood of an Iranian comeback, we now see a clearer path for the next higher oil price leg, the sell-off. offering opportunities to position for the rally at $ 80 a barrel. ”Jeffrey Currie, global head of commodities research at Goldman Sachs wrote in a recent co-authored memo.

Over the past year, Brent crude oil prices have climbed nearly 85% to reach $ 66 a barrel now as the global economy opens up to trade after a strict lockdown triggered by the Covid pandemic. 19.

Since March, prices have been volatile amid concerns over the pace and effectiveness of vaccination, new waves of Covid in emerging markets (EM) and the return of Iranian barrels, the latter of which drove Brent prices down. from $ 70 to $ 65 a barrel last week.

READ ALSO: How the Covid Crisis Depleted What Mr Modi had in abundance all these years

“Our updated baseline scenario is that the resumption of Iranian production will start in October (earlier forecast in June 2022), reaching 3.5 million barrels per day (mb / d) after 6 months. OPEC + will compensate for such a rise in power by stopping its monthly production growth rate of 0.5 mb / d for two months in the second half of 2021 (S2-21), leaving the destocking trajectory unchanged for only a modest slowdown in production. pace of its normalization of excess capacity, ”Currie wrote.

Meanwhile, those at S&P Global Platts forecast Iranian crude and condensate exports to grow from around 800,000 bbl / d in April to 1.4 mb / d in December and 2 mb / d by July 2022.

Trip abroad

International travel, according to Goldman Sachs, is another key factor that could trigger an increase in demand, which in turn will keep oil prices high. On the other hand, shale oil production was reduced by 0.25 mb / d in H2-21 as production and drilling activity remained below expectations.

READ ALSO: India to look to OPEC once oil demand picks up after second wave of Covid

“With indications of reopening international travel, we expect global demand to increase by 4.6mb / d through the end of the year, with most of the gains expected over the next 3 months. We continue to expect only a limited contribution from emerging countries outside of China, with 75% of our recovery in demand coming from DMs and China, demand for jets and seasonal cooling in the Middle East, ”Goldman Sachs said.

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Felix J. Dixon