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Just a speed bump? Oil has taken a dive, but Goldman is still bullish


Pump jacks operate in front of a drilling rig in an oil field in Midland, Texas.

Nick Oxford | Reuters

A panic-induced sell-off in the oil market triggered by virus concerns has thrown the commodity’s upward march into question — but energy experts at Goldman Sachs don’t appear to be rattled.

Fears over the surging delta coronavirus variant and a fresh supply boost agreement from OPEC+ sent oil prices tumbling down more than 7% as the trading week opened Monday.

The drop was the steepest since March, a rude awakening for oil bulls who’d been enjoying the commodities’ highest prices in 2½ years.

International benchmark Brent crude was trading at $68.42 a barrel at 2:15 p.m. in London on Tuesday, down just over 7% from its Friday close of $73.59 a barrel. 

Oil analysts were quick to stress the uncertain road ahead for demand as new waves of Covid-19 infections ― many among communities that have high vaccination rates ― threaten the recent months of economic recovery.

“The market is clearly unsettled about the demand outlook. And rightly so. The rise in delta variant cases is raising questions about the sustainability of demand,” Stephen Brennock, a senior analyst at PVM Oil Associates in London, wrote in a research note Tuesday entitled “Oil takes a beating.”

But analysts at Goldman Sachs led by Senior Commodity Strategist Damien Courvalin see the current setback as merely a speedbump, with little concrete reason for oil bulls to be worried.

Supply driving the bulls?

Oil balances globally are tighter than they were before, despite the agreement between OPEC and its allies over the weekend to cumulatively increase crude production by 400,000 barrels a day on a monthly basis beginning in August. 

The International Energy Agency estimated a 1.5 million barrel per day shortfall for the second half of this year compared to its demand predictions in the absence of an OPEC supply deal.

And Goldman predicts the impact from delta to be in the neighborhood of “a potential 1 mb/d  (million barrels per day) hit for only a couple months, and even less if vaccines prove effective at lowering hospitalizations in DMs (developing markets), the origin of most summer demand improvements,” as per its latest report. 

Goldman’s call is in line with its previously bullish stance, which saw it forecasting Brent hitting $80 per barrel in the second half of this year.

The optimistic recovery outlook, paired with what it sees as a “slower” production ramp-up than expected from OPEC and tighter supply, so far means that “our constructive view on oil prices remains intact.” But the immediate-term demand hit from delta fears triggered a swap in the lender’s quarterly forecasts: It now expects Brent to average $75 per barrel in the third quarter of this year and only reach $80 by the fourth quarter.

“Oil prices may continue to gyrate wildly in the coming weeks given the uncertainties of the Delta variant and the slow velocity of supply developments,” Goldman’s analysts…



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Just a speed bump? Oil has taken a dive, but Goldman is still bullish