Despite OPEC’s monthly report showed a rise in global oil stocks and a production jump from Saudi Arabia, the group’s compliance with the output cuts remained high, Goldman Sachs said on Tuesday.
In a research note, Goldman Sachs said that market rebalancing is still progressing, and it saw deman for oil finally surpassing supply in the second quarter supported by production cuts, despite an expected increase in U.S. shale output.
OPEC reported an increase in oil inventories and raised its forecast for production in 2017 from outside the group. It said that Saudi Arabia, its biggest producer, increased production in February by 263,000 barrels per day to 10 million barrels per day.
That news subjected U.S. crude to its lowest price since November 29, a day before Saudi Arabia led OPEC to limit supplies. Brent crude settled at its lowest since November 30.
"Our expectations that inventories will draw through 2017 therefore leads us to expect that Brent timespreads will continue to strengthen with the forward curve in backwardation by 3Q17," said Goldman Sachs in its research note.
Goldman stated it was not in the best interest of OPEC to prolong output cuts beyond six months as the group’s goal was to normalize inventories and not to support prices.
The bank reiterated its base case that production cuts will be followed by new production highs.
"Combined to the shale ramp-up and greater visibility on the majors shifting focus to future growth, we see potential for long-dated oil prices to continue to decline below our $50 per barrel long-term price forecast."