Sudden turn in crude oil surprises Goldman Sachs

NEW YORK: The global oil market has flipped to a deficit sooner than Goldman Sachs Group had expected. A decline in production driven by unexpected supply disruptions, as well as sustained demand, have resulted in a “sudden halt” to the output surplus, Goldman analysts Damien Courvalin and Jeffrey Currie wrote in a report dated May 15. Other banks such as Morgan Stanley, Barclays and Bank of America also noted that supply losses are leading markets to rebalance.

The unexpected outages caused by everything from wildfires in Canada to pipeline attacks in Nigeria will keep production below demand through the second half of this year, according to Goldman. Still, the return of some output and higher-than-expected volumes from the US, the North Sea, Iraq and Iran mean the shortfall will be 400,000 barrels a day rather than the 900,000 previously predicted, it said. A return to surplus production is seen in early 2017.

“The physical rebalancing of the oil market has finally started,” Goldman said. The bank raised its US crude price forecast for the second half of 2016 to $50 a barrel from $45 estimated in March. It cut its forecast for the first quarter of 2017 to $45 from $55, but sees oil at $60 by the end of that year. The bank expects global demand to grow by 1.4 million barrels a day in 2016, versus 1.2 million predicted previously.