The re-balancing of the global oil market has been a volatile and unpredictable process, and Goldman Sachs analyst Damien Courvalin believes the market still has a long way to go. According to Courvalin, Goldman is now anticipating a more gradual decline in inventories in the second half of 2016 before the oil market transitions back to a surplus in Q1 of 2017.
“With the large inventory builds behind us, we expect that deferred prices will start to stabilize, consistent with the recent increase in producer hedging as they near their marginal costs,” Courvalin explains.
“This will leave near-term inventory shift as driving timespreads and ultimately spot prices, with our forecast for lower inventories driving prices higher despite our expectation for a return to surplus next year.”
Goldman projects that WTI crude prices, which have recently surged above $47/bbl, will average $45/bbl in Q2 and $50/bbl in the second half of 2016. Looking ahead to 2017, Courvalin now sees a more modest price recovery that Goldman previously anticipated. The firm lowered its average 2017 WTI price forecast from $57.50 to $52.50, although Goldman does believe WTI will reach $60/bbl by the end of next year.
In terms of the overall oil cycle, Goldman assumes…
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