Goldman Sachs, a prominent financial institution, projects that the oil market will experience a surge in demand, leading to an increase in crude oil prices in the near future. Daan Struyven, Goldman’s head of oil research, shared insights on the bank’s expectations during a recent interview on CNBC’s “Squawk Box Asia.”
According to Struyven, the second half of the year will see substantial deficits, with an estimated shortage of nearly 2 million barrels per day in the third quarter, as global oil demand reaches an all-time high. As a result, the bank foresees Brent crude prices rising from their current level, just above $80 per barrel, to $86 per barrel by the end of the year.
Presently, global benchmark Brent futures traded at $80.75 per barrel, showing a marginal decline of 0.39%, while U.S. West Texas Intermediate futures stood at $76.75 per barrel, experiencing a similar 0.42% dip.
Despite acknowledging a significant rise in U.S. crude oil production, which has reached 12.7 million barrels per day over the past year, Struyven predicts that this growth rate will decelerate throughout the remainder of 2023. He emphasized that U.S. crude supply growth is expected to slow down significantly, reaching a sequential pace of only 200 barrels per day, attributing the deceleration to a decline in rig counts. These counts reflect the number of active oil rigs and are used as an indicator of drilling activity and future output.
In a recent report, Goldman Sachs pointed out that the U.S. oil rig count recently hit its lowest level in 16 months, with a decline of 15% from its peak in late 2022, based on data from Baker Hughes and Haver. Last week, Baker Hughes reported a drop of 7 U.S. oil rigs, bringing the count to 530, the lowest figure since March 2022.
Struyven also highlighted the lack of consensus following the G20 energy ministers’ meeting in India over the weekend. The absence of an agreement on phasing down fossil fuels complicates the transition towards clean energy, resulting in “very substantial” uncertainty about long-term oil demand. As a consequence, investors may demand a premium to compensate for the elevated risk associated with such uncertainty.
The International Energy Agency previously projected a rise of 2.4 million barrels per day in global oil demand for 2023, surpassing the 2.3 million barrels per day increase observed in the previous year. Additionally, the secretary-general of the International Energy Forum, Joseph McMonigle, forecasted that both India and China would account for a combined demand pickup of 2 million barrels per day in the second half of 2023.
Goldman Sachs’ outlook for record oil demand indicates potential volatility in crude prices, requiring investors to closely monitor market developments and navigate the uncertainties in the global energy landscape.