Oil may rise to $86 per barrel due to 'solid summer demand': Goldman Sachs
What factors are contributing to the expected rise in oil prices to $86 per barrel during the third quarter of this year according to Goldman Sachs?
According to Goldman Sachs, several factors are contributing to the expected rise in oil prices to $86 per barrel during the third quarter of this year. These factors include:
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Solid summer demand: The driving season in the United States and other parts of the world is expected to increase fuel demand as economies recover from pandemic-induced slumps.
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Healthy consumers: Consumers are in a strong position, which is expected to boost demand for transportation and cooling during the summer months.
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Tight global supply: The Organization of Petroleum Exporting Countries (OPEC) and its allies have been restrained in easing the draconian supply cuts imposed in 2020 to salvage prices. This has led to a tighter supply situation in the global market.
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Market dynamics: Oil prices have more than doubled over the past 12 months, fanning inflationary concerns as the global economy rebounded from the dislocation caused by the coronavirus pandemic.
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Unwinding of voluntary cuts: An additional round of voluntary cuts amounting to 2.2 million barrels per day by OPEC+ coalition of nations will be unwound starting in October.
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Physical demand: Physical demand for oil, including from China and the U.S. Strategic Petroleum Reserve (SPR), tends to rise when prices fall, providing a floor under Brent prices at $75 per barrel.
In summary, the expected rise in oil prices to $86 per barrel during the third quarter of this year is driven by a combination of solid summer demand, healthy consumers, tight global supply, market dynamics, unwinding of voluntary cuts, and physical demand for oil.
What are the current trends in Brent crude oil prices compared to the highs of early April 2024?
The current trends in Brent crude oil prices have experienced a decline compared to the highs of early April 2024. In early April, Brent prices briefly hit $91 a barrel. Since then, prices have dipped and have largely remained above $80 in May before falling into the upper $70 range during the first week of June. Goldman Sachs analysts forecast that Brent crude oil prices will rise to $86 a barrel in the third quarter of this year, which would represent an increase of about 7.5% from its price level as of late June 2024, when it topped $80 a barrel in afternoon trading. The fluctuations in oil prices come after the Organization of the Petroleum Exporting Countries (OPEC) and the broader OPEC+ coalition of nations announced that they would keep overall cuts to oil production in place through 2025.
How are maintenance activities at the SPR sites expected to impact the storage and availability of oil reserves?
Maintenance activities at the SPR (Strategic Petroleum Reserve) sites are expected to have a significant impact on the storage and availability of oil reserves. The SPR stores crude oil in underground salt caverns at four locations in Texas and Louisiana. These sites have been undergoing scheduled maintenance to extend the life of the facilities.
The maintenance activities are crucial for ensuring the optimal functioning of the SPR and its ability to meet the nation's energy security needs. However, while the maintenance is ongoing, the storage and availability of oil reserves may be affected. The maintenance could lead to temporary disruptions in the storage capacity and the ability to access the reserves quickly during an emergency.
It is important to note that the Energy Department is in the process of refilling the SPR, which was drawn down by 180 million barrels in 2022. The refilling process aims to ensure that the SPR maintains an adequate level of reserves to provide energy and economic security through emergency stockpiles of crude oil and refined products3.
In conclusion, maintenance activities at the SPR sites are necessary to ensure the long-term reliability and effectiveness of the Strategic Petroleum Reserve. While these activities may have a temporary impact on the storage and availability of oil reserves, they are crucial for maintaining the SPR's mission readiness and its ability to respond to potential disruptions in the oil market.