Crude Selloff Due To Higher Than Expected Supply, US SPR Releases: Goldman

Crude oil prices in the past year declined by around 35% because of higher-than-expected supply, especially from Russia, and record US SPR releases according to a Goldman Sachs note.

• Higher supply from Russia as well as Venezuela and Iran, and record US SPR releases account for over 80% of the crude selloff in the past year. Rising fears of US recession and a slowdown in China’s economic recovery have also weighed on crude prices, Goldman said.
• Realised oil demand does not explain the decline in oil prices, the note said, as demand estimates have been consistently revised higher since November. IEA’s latest monthly report revised oil demand growth up by 200kbpd to 2.2mbpd for 2023.
• The bank forecasts Brent prices at $95/bbl in December and retains the view that the crude oil market will have sustained deficits from June amid OPEC+ production cuts and anticipated higher demand. The supply deficit is forecast to average 1.5mbpd during 2H 2023. Higher demand will be driven by strong demand from emerging markets and global services.
• Russia pledged to cut its crude oil output by 500kbpd compared to the February baseline, but so far crude export figures suggest the cut has not fully materialised yet.
• However, OPEC+ supply has started to fall following some signs of a Russia cut and large declines in OPEC exports, consistent with high compliance to the latest OPEC cut, the note said.
• Goldman sees Russia’s current total liquids production 300kbpd lower than February levels. This decline reflects lower refinery runs and lower pipeline exports. The bank expects Russia to fully implement its pledge to cut by 500kbpd because of pressure from its OPEC+ partners.
• The bank sees US crude oil supply growth to slow to an annualised pace of 250kbpd, supported by the latest drop in US oil rig count.