Expectations and confidence: Goldman Sachs (GS) on the new Donald Trump policy to support crude oil prices.
Initially Donald Trump’s victory, the strengthening dollar, rising US crude oil rigs, and high crude oil, gasoline, and distillate inventories could limit the upside for prices.
Goldman Sachs (GS) expects that successful implementation of OPEC (Organization of the Oil Exporting Countries). Non-OPEC producers’ plan to cut production will reduce the oversupply in the market and support crude oil prices.
Goldman Sachs expects Brent to average $58 per barrel in 2017—compared to its previous forecast of $51.50 per barrel. Likewise, it expects WTI crude oil prices to average $57.50 per barrel for the same period.
However, a recent Reuters report may be showing there was more to the decision to cut production. While the supply imbalance was first the main reason for the cut, now reports are surfacing that prior production levels may have been testing capacity limits.
The Reduction forecast
OPEC agreed to slash the output by 1.2 million barrels/day from Jan. 1, with top exporter Saudi Arabia cutting as much as 486,000 barrels/day.
Non-OPEC oil producers (such as Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, and South Sudan) agreed to reduce output by 558,000 barrels/day. And this latter starting from Jan. 1, 2017 for six months, to take into account prevailing market conditions and prospects.
Nevertheless, the successful implementation of Donald Trump’s energy policies would lead to a rise in US crude oil production. The rise in non-OPEC production in 2017 would also pressure crude oil prices. A Wall Street Journal survey of major banks predicts that US and Brent prices will average $54 per barrel and $56 per barrel in 2017, respectively. It’s $1 per barrel more than the previous estimates.
Let’s see in June which effects of this policy in the oil market.