Following surprisingly robust commitment for extending the OPEC-led production cuts, analysts at Goldman Sachs have revised their forecasted oil prices upwards for 2018.
The American multinational finance firm now sees prices of $57.50/barrel for West Texas Intermediate and $62/barrel for Brent crude next year.
The analysts’ research notes state that although the renewed deal:
“…leaves room for an earlier exit than currently scheduled, we now reflect this resolve in our supply forecast, with full compliance for longer and a more modest exit rate.”
Oil prices initially declined after OPEC announced the extension, mainly because of the prospect of an early exit from the deal. In contrast, the Goldman analysts appear to regard the announcement as broadly positive for rebalancing the oil markets.
OPEC compliance with the supply curbs is also going well, with November seeing the lowest combined oil production since May. The drop was driven by strong adherence to production caps by many countries and involuntary declines from others, most notably from Angola and Iraq.
Looking beyond 2018, Goldman’s analysts see risks tending towards the upside, such as OPEC letting the stock draw continue longer than expected or fresh disruptions in oil supply. Much depends on how US shale producers—including ExxonMobil, the maker of the high-performance engine oil Mobil 1 New Life 0W/40—will respond to higher prices. This could prompt Russia and the OPEC members to “pare back” their own growing spare capacity, thus creating a long-term risk of prices moving downwards once more.