Goldman: Prices Entering Political Intervention Territory

Goldman Sachs note that “Brent oil prices have rallied past $90/bbl (our Q122 forecast), driven by tight fundamentals, with steep inventory draws leaving the market with concerning low inventory levels across a range of petroleum products and regions. It is in this context that OPEC+ meets this Wednesday (February 2) to set their production plans for March, with the group so far notably quiet on their decision.”

• “While we had assumed a roll-over of the monthly 0.4mn bpd quota hike, we view growing potential for a faster ramp-up at this meeting, given the pace of the recent rally and the likely pressure from importing nations (with prices above the small coordinated SPR releases last November). The producers' group may also be growing more concerned by the hawkish central bank shift that could lead to slower global growth and oil revenues later this year.”
• “While we acknowledge that the potential outcome remains evenly balanced between such an accelerated response and a status quo increase, the oil market would likely respond more negatively to the former given the 33% uninterrupted rally over the past two-months. Fundamentally, our modelling would point to a $3/bbl impact if OPEC+ brought forward the April hike (worth 0.2mn bpd additional supply through Dec ‘22) or even less if Saudi increase output by 0.5mn bpd for three months.”
• “Such an OPEC+ move would not change our bullish view, however, simply representing a shift in the risk-reward of being long oil this week. In fact, the rapid decline in Covid cases, the strength of demand so far this year and initial earnings releases of U.S. producers, guiding production below expectation, all reinforce our conviction in the need for sharply higher prices. We further continue to see rising disruption risks as an offset to a potential faster return of Iran production.”