Abu Dhabi, UAEThursday 20 June 2019

Trump wants lower oil prices but Goldman expects $70-75 rally near-term

Oil sold off 3.5% following the US president's Twitter comments

President Trump called on sovereign producers to "relax and take it easy" following oil's rally earlier this month. AP Photo
President Trump called on sovereign producers to "relax and take it easy" following oil's rally earlier this month. AP Photo

Oil prices may appear to be poised for a decline following tweets by US President Donald Trump to lower them, but Goldman Sachs predicts a rally, that may raise crude fare to $75 a barrel.

Futures for West Texas Intermediate, the North American benchmark for crude, slid as much as 3.5 per cent on Monday, the steepest plunge in four weeks following a tweet by Mr Trump, in which he implored the Opec+ alliance on undertaking production curbs and to "relax and take it easy" as prices were "getting too high".

Oil prices have rallied since the beginning of the year to above $60 a barrel, when Opec production cuts of 1.2 million barrels per day agreed to in December came into effect alongside falling output from Venezuela, which is in the middle of a political crisis.

Prices recovered from a dismal December, which saw benchmark Brent crash to 41 per cent of its value from a three-year high of $86.29 in October.

Record high production from US shale producers and minimal impact on supply from the onset of US sanctions against Iran in November were behind crash in oil prices by year end.

Opec, which had been undertaking a boost to supply following calls by the Mr Trump to lower prices ahead of US midterms and driving season, decided to reverse the policy to push prices higher.

While oil could potentially teeter further should the US administration push harder for a bearish market, investment bank Goldman Sachs has forecast a rally of 13 per cent from current levels.

Brent price could rise up to $70 to $75 per barrel in the near future, analysts said particularly in anticipation of supply disruptions from Venezuela that are likely to accelerate over the coming months.

"The near-term bullish outlook is driven by a slew of recent data points that suggest that the oil market will likely continue to tighten significantly this March and April," analysts at Goldman Sachs said in a report dubbed the New Oil Order.

On the supply side, Saudi Arabia, the world's largest exporter of crude "has not only driven a ‘shock and awe’ Opec strategy of cutting fast and deep to create a quick rebalancing before US shale producers can respond, but is also leading by example by guiding to March production 500,000 bpd lower than its own quota", the report said. "This is on top of recent guidance from Russia for faster cuts during March and April. Opec’s strategy is to rebalance the market as quickly as possible and exit the cuts by the end of June."

The grace period for Iranian oil importers is nearing its end and higher oil prices could prompt the US administration to grant further waivers, said Norbert Rucker of Swiss bank Julius Baer.

Updated: February 26, 2019 03:08 PM

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