Goldman forecasts strong demand even as oil hits $80

By Heesu Lee and Grant Smith

Money managers who are reducing their bullish bets on oil are following a “dangerous” strategy, according to Goldman Sachs.

Demand will remain strong and concerns over economic growth will probably prove temporary, analysts including Jeffrey Currie wrote in a note, adding that US shale and Opec are unlikely to solve problems from potential supply disruptions.

The bank also said the case for owning commodities has strengthened and raised its forecast for 12-month returns from raw materials to 8 percent from 5%.

It comes as oil rose to $80 a barrel in London for the first time since 2014 as US crude inventories fell and traders braced for the impact of renewed sanctions on Opec member Iran.

Crude has rallied this month on concern that President Donald Trump’s decision to quit an international accord with Iran and reimpose sanctions will strain global supplies just as markets are already tightening.

The glut that had weighed on prices for the past three years has finally been eliminated, thanks to strong demand and output cuts by other producers in Opec, the International Energy Agency said earlier this week.

Oil’s advance to $80 brings it to the level that Opec’s biggest member, Saudi Arabia, is reportedly seeking to cover the cost of weighty domestic spending commitments.

However, the agency, which advises oil-consuming nations, has warned that prices are high enough to hurt consumption, and trimmed its forecasts for demand growth.

“Supply concerns are top of mind after the US left the Iran nuclear deal,” said Norbert Ruecker, head of macro and commodity research at Julius Baer Group in Zurich.

“The geopolitical noise and escalation fears are here to stay,” he said.

Bullish bets by money managers on global benchmark Brent crude have declined for four weeks since mid-April, while front-month futures have jumped more than 10% over the past month.

Speculation has been swirling over how the US decision to renew sanctions will affect the market.

Even if only 200,000 to 300,000 barrels a day of Iranian exports are at risk by the end of the year, the Organisation of Petroleum Exporting Countries is unlikely to preempt this loss, and will only react to it, according to Goldman.

Any response will reduce spare capacity in an increasingly tighter market, with an erosion in Venezuela and Angola oil output accelerating at the same time growth outside the US is stalling, the bank said.

- Bloomberg


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