Goldman Sees Higher Oil Prices in 2021 After OPEC+ Agreement

OPEC+ agreed to raise production by 500,000 barrels per day (bpd). The group has now agreed to cut production by 7.2 million bpd. This represents 7% of global demand from January and it is lower than current cuts of 7.7 million bpd.

OPEC+ abandoned plans to raise output by 2 million bpd amid a surge in the number of new coronavirus infections worldwide. The group is expected to continue existing cuts until at least March.

“500,000 bpd from January is not the nightmare scenario that the market feared, but it is not what was really expected weeks ago. Markets are now reacting positively and prices are recording a small increase as 500,000 of extra supply is not deadly for balances,” said Paola Rodriguez Masiu, senior oil markets analyst at Rystad Energy.

Goldman Sachs analysts believe that OPEC+ agreement will support oil prices going into 2021.

“OPEC+ clearing the hurdle of exiting its current cuts in a coordinated way ... reinforces our conviction in a steady and sustainable rally in oil prices through 2021,” a note sent to clients yesterday said.

In another note sent to clients earlier this week, Goldman Sachs analysts Damien Courvalin, Callum Bruce and Jeffery Currie said they expect oil prices will stay volatile in the coming week. Still, a recovery in price action is expected in 2021.

“The winter Covid wave [will] delay but not derail the oil market rebalancing, with normalised OECD stocks, OPEC+ spare capacity returning to 1Q20 levels, and finally needed shale production growth, all occurring by 4Q21,” it is said in the note.

The oil market is on a “tightening” path, with temporary winter headwinds are seen as “speed bumps”.

Crude oil prices trade 1.9% higher at $46.50, while Brent is up 1.85% at $49.60.

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