Larger than previously expected oil inventory draws in developed economies could limit downside risks to oil prices and add $2 a barrel to Goldman Sachs’s end-year call for $86 per barrel Brent, the bank said in a note. Commercial oil stocks in the OECD region in August are trending 30 million barrels lower than Goldman Sachs analysts have previously expected, the Wall Street bank said in the Tuesday note carried by Reuters.
“The main reason for oil outperformance is that the oil market continues to price sizeable deficits,” Goldman analysts wrote in a research note on Tuesday, adding that draws tempered the bearish risk of what they previously called “persistently higher-than-expected inventories”.
Goldman said higher refinery runs slashed U.S. and Asia crude stocks by 21 million and 11 million barrels, respectively, since the end of June. Together with a China-driven fall in non-OECD stocks by 50 million barrels this month, and a Saudi Arabia-led draw of 20 million barrels from stocks on water, global oil stocks saw a month-to-date decline of 80 million barrels. Another bullish risk to prices from lower-for-longer OPEC+ supply has grown with “Saudi’s reiterated commitment to cuts and apparent willingness to extend and even deepen cuts”, Goldman said. China demand news was mixed and suggested that weakness in macro data was concentrated outside the oil-intensive services sector while international jet demand was still recovering. It also noted a bearish risk from higher Iranian supply, citing an estimated 500,000 bpd rise in exports through Aug. 20. Last month, Daan Struyven, head of oil research at Goldman Sachs, told CNBC that the bank expects oil prices to go higher as record-high oil demand and lowered supply are set to lead to a large market deficit.
“We expect pretty sizable deficits in the second half with deficits of almost 2 million barrels per day in the third quarter as demand reaches an all-time high,” Struyven said.
Global observed oil inventories declined by 17.3 million barrels in June, led by draws in the OECD, the International Energy Agency (IEA) said in its monthly report in August. Observed oil stocks decreased for a third consecutive month in July, with OECD industry stocks now sitting at more than 100 million barrels below the five-year average. “Market balances are set to tighten further into the autumn as Saudi Arabia and Russia extend supply cuts at least through September,” the agency noted. If the OPEC+ alliance maintains its current production and export levels, oil inventories could draw by 2.2 million barrels per day (bpd) in the third quarter and 1.2 million bpd in the fourth quarter, “with a risk of driving prices still higher,” the IEA said.