Goldman Sachs sees oil price rising to $110 a barrel as Opec+ cuts output

US President Joe Biden's administration criticised the Opec+ cut as "shortsighted"
Goldman Sachs sees oil price rising to $110 a barrel as Opec+ cuts output

The reduction could prompt the International Energy Agency to co-ordinate a release of reserves. Morgan Stanley said the move will accelerate crude’s path back to $100 a barrel. 

Goldman Sachs has raised its fourth quarter price forecast for crude oil to $110 a barrel after the Opec+ group of oil producers pledged to cut production to keep crude prices at elevated levels. 

“All the developments we have seen on the supply side at this point very much sets the stage for what we believe will be higher prices into the end of this year,” Damien Courvalin at Goldman Sachs said. The bank increased its fourth-quarter estimate for Brent by $10 to $110 a barrel. 

Other forecasters also projected higher crude oil prices. “Brent will find its way to $100 a barrel quicker than we estimated before” after the Opec+ move, Morgan Stanley analysts said in a research note. 

The reduction risks tightening markets significantly, although much depends on how Russian oil output fares once the European Union’s embargo comes into force, the analysts said. Morgan Stanley increased its Brent forecast $5 to $100 for the first three months of 2023, while keeping its outlook unchanged for the next three quarters. 

However, the reduction could prompt the International Energy Agency to co-ordinate a release of reserves. Morgan Stanley said the move will accelerate crude’s path back to $100 a barrel. 

On Thursday, oil prices held at three-week highs following the Opec+ decision, the largest reduction since 2020. Brent crude futures rose almost 1% to $94.25 a barrel. 

US President Joe Biden's administration criticised the deal as "shortsighted", and the White House said Mr Biden would continue to assess whether to release more supplies from the US strategic petroleum reserve to lower prices.

The White House said it would consult Congress on additional paths to reduce the control Opec and its allies hold over energy prices in an apparent reference to legislation that could expose members of the group to competition lawsuits.

The agreement between the Organisation of Petroleum Exporting Countries and allies including Russia, a group known collectively as Opec+, comes ahead of a European Union embargo on Russian oil and would squeeze supplies in an already tight market, adding to inflation

"We believe that the price impact of the announced measures will be significant," said Jorge Leon, senior vice-president at Rystad Energy.

By December, Brent would reach over $100 a barrel, up from our earlier call for $89 a barrel, he said. Saudi Energy Minister Abdulaziz bin Salman said the real supply cut would be about 1 million to 1.1 million barrels a day. 

Bloomberg and Reuters

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