Oil will surge 21% this year even as spiking COVID-19 infections hamper near-term demand, Goldman Sachs says
- Oil could surge 21% this year, even as near-term demand is hurt by rising COVID-19 infections, Goldman Sachs said in a note on Tuesday.
- Oil extended its two-day surge to as much as 7% on Wednesday, with the rally sparked by Saudi Arabia's surprise decision to cut oil production by 1 million barrels per day on Tuesday.
- The most rational explanation to Saudi Arabia's oil production cut is "a large expected slowdown in global oil demand" driven in part by rising COVID-19 infections.
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Brent crude oil could surge to $65 per barrel by the end of 2021, even as near-term demand is set to be weak due to rising COVID-19 infections, Goldman Sachs said in a note on Tuesday. A move to $65 would represent potential upside of 21% as of Tuesday's close.
Brent traded up as much as 1% in Wednesday trades, extending its two-day surge to as much as 7%. The initial rally was sparked by Saudi Arabia's surprise decision to cut its oil production by 1 million barrels per day throughout February and March.
The oil production cut was a surprise to the markets because global oil demand beat expectations in December thanks to limited lockdown measures and resilient jet demand, according to Goldman.
Oil prices will likely be supported in the coming weeks thanks to the oil production cut and "the prospect for a tight market in 2Q21," but Saudi Arabia's decision "reflects signs of weakening demand as lockdowns return," Goldman said in the note.
"A large expected slowdown in global oil demand [is] the most rational explanation for Saudi's cut," Goldman said, adding that Saudi undermined its efforts since April to have OPEC+ members implement similar cuts.
Russia and Kazakhstan will increased their oil output by a combined 75,000 barrels per day in February and March.
In fact, Goldman's high-frequency oil demand data suggests that recent aggressive lockdowns in countries like the UK have already weighed on oil demand, according to the note.
