- Goldman Sachs believes solid demand growth could send Brent climbing to $105 by the fourth quarter of 2023.
- China has now reopened its borders and allocated large crude oil import quotas to its refiners, supporting the thesis for strong demand growth.
- Goldman Sachs believes the downside for oil markets is limited due to the ability of OPEC+ to intervene in oil markets.
Solid growth in global oil demand is set to drive oil prices to above $100 this year and Brent Crude could trade at $105 per barrel by the fourth quarter, according to Goldman Sachs.
World oil demand is set to increase by 2.7 million barrels per day (bpd) in 2023 and the market would return to deficit in the second half of the year, the U.S. investment bank said in a note carried by The National.
China’s re-opening and the huge crude oil import quotas just allocated to private refiners in the world’s largest crude oil importer signal expectations that Chinese demand is set for a rebound once the exit Covid wave wanes, analysts say.
Oil prices jumped by 4% on Monday after China’s borders reopening this weekend—after almost three years. Market participants focused – at least for a day – on brighter prospects of oil demand, instead of on fears that recessions in developed economies are imminent.
Expectations of solid demand growth this year should allow the OPEC+ group to unwind in the second half of 2023 the production cut announced in October, Goldman Sachs said.
But if demand is softer than predicted, OPEC+ “could stick to its October cuts or cut production even further, given its significant pricing power,” the bank said.
“Overall, this ‘Opec put’ limits the downside risks to our bullish oil price forecast,” Goldman Sachs noted.
Last month, the bank said that the Chinese reopening could lift oil prices by $15 per barrel, as China’s demand could increase by 1 million bpd on average between 2022 and 2023.
In mid-December, Goldman said that supply shortages and insufficient investment in new supply would result in a bumper year for commodities in 2023.
Commodities are set to be the best-performing asset class in 2023, the bank’s strategists said. The first quarter of 2023 could be more underwhelming than the rest of the year due to the expected slowdown in economies, but the low levels of investment in oil, gas, and key metals will continue to underpin what Goldman has called a new supercycle in commodities.