In a surprising move, the OPEC+ announced a reduction in its combined oil production by more than 1 million barrels per day.
This announcement came as a shock to many traders who were expecting the cartel to boost output from June onwards due to rising demand from China and a slow increase in non-OPEC production.
Hours after the announcement, Goldman Sachs issued a revision of its oil price forecast, raising it to $95 from $90 at the end of the year for Brent crude. The bank also raised its Brent crude forecast for 2024, now seeing it at $100 at the end of the year from an earlier projection of $97.
Last month, Goldman Sachs had predicted that crude oil prices could rise to $107 per barrel if OPEC stood by its production targets. At the time, Brent was trading at around $84 per barrel.
Goldman’s analysts noted that even under the scenario of OPEC boosting its output, oil prices would rise in the second half of the year. And that scenario saw 1 million bpd added to global supply.
In March, Goldman Sachs reiterated its bullish outlook, advising traders to buy the dip while it lasted. “We would argue you are buying the dip at this point,” the bank’s head of commodities Jeffrey Currie said, adding, “I have never seen a market sell off that sharply, but retain a bullish structure.”
With the unexpected production cut by OPEC+, Goldman Sachs praised the move, stating that it is consistent with the new OPEC+ doctrine to act preemptively because they can without significant losses in market share.
According to unnamed sources who spoke to the Financial Times, Riyadh had been annoyed by the Biden administration’s decision to delay the start of oil purchases for the Strategic Petroleum Reserve, which may have contributed to the Saudi’s decision to account for the lion’s share of the production cut at 500,000 bpd.
Overall, the recent production cut by OPEC+ and the subsequent increase in oil price forecast by Goldman Sachs have sent a positive signal to the market, indicating a potential upward trend in the coming months. Traders may want to keep a close eye on any further developments and adjust their strategies accordingly.
