Goldman Sachs has forecast that oil prices will continue to fall in the weeks to come, arguing that a “historic yet insufficient” OPEC+ deal to cut output is unlikely to fully compensate for the coronavirus-induced dip in demand.
In particular, Brent is predicted to slump to $20 per barrel, with the bank projecting the global crude benchmark to overtake US oil due to slump in OPEC+ producers’ exports.
According to the bank, the agreed cuts by key OPEC members and 50% compliance by other countries that have agreed to curb production next month, will only lead to a decrease of no more than 4.3 million bpd from first-quarter benchmarks, the institution said, adding this would not help much.
“Ultimately, this simply reflects that no voluntary cuts could be large enough to offset the 19 million bpd average April-May demand loss due to the coronavirus", the top investment bank assumed.
It further added that risks surrounding its 2021 price prediction of $52.50 per barrel for Brent were “skewed squarely to the upside”, since “violent market rebalancing” will be followed by a sharp rebound once demand goes upward with time.
According to market data, Brent crude oil prices temporarily increased by 1-3% after the OPEC+ deal, before the benchmark, combined with WTI prices, started going down again.
Meanwhile, the outlook of another major bank, Morgan Stanley, is slightly more bullish.
The investment company, in turn, raised its oil price predictions a bit, saying the OPEC+ deal would lead to intensified stock reductions beginning in the second half of 2020, while forecasting yearly demand to fall about 14 million bpd in the second quarter. Wall Street's second largest bank predicted third-quarter Brent prices to reach $30 per barrel - up from $25, and WTI price tags to stand at $27.50 per barrel - up from the current $22.50. It likewise raised its fourth-quarter outlook by $5 per barrel for both crude benchmarks.
OPEC members and their allies reached a new deal during an online meeting on Sunday to jointly lower their oil production by 9.7 million barrels per day for two months, starting in May, in response to the overwhelming coronavirus-caused slump in global oil demand.
The productive effort came after fruitless OPEC+ talks in early March, which saw the parties fail to reach a compromise on oil production cuts.