Goldman: IEA Emergency Oil Release Insufficient To Prevent Higher Prices

Goldman Sachs note that “the International Energy Agency (IEA) announced it would release 60mn bbl of emergency oil reserves following Russia's invasion of Ukraine and the resulting surge in prices. As we discussed previously, we do not view this as sufficient relief, representing an only 1-month offset to a potential disruption to one-third of Russia's 6mn bpd seaborne oil export flows, for example, consistent with the rally in prices after today's announcement.”

• “We reiterate our view that demand destruction - through still higher prices - is now likely the only sufficient rebalancing mechanism, with supply elasticity no longer relevant in the face of such a potential large and immediate supply shock. This leaves risk to our one-month $115/bbl Brent price forecast still skewed to the upside, with today's $105/bbl spot prices only at the level we believed was required to balance the oil market prior to any escalation in Ukraine.”
• “In particular, a short-term de-escalation or a potentially faster ramp-up in OPEC+ production would not derail our view for structurally higher prices, with Dec-23 Brent $24/bbl below our forecast. Similarly, we do not expect a large price sell-off should an agreement with Iran be reached soon. Case in point, the global oil deficit in February is turning out to be twice as large as our above-consensus forecast while Iraq is experiencing 0.5 mb/d of outages, enough - if sustained and combined - to fully nullify Iran's potential return to the global oil market.”