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The price of Brent crude, a key global oil benchmark, is at risk of falling from an estimated range of $75 to $90 per barrel, Goldman Sachs analysts said on Sunday. They said their estimates may be overly optimistic because the planned production cuts will end The major oil-producing countries are not sufficient to reduce the excess supply of oil.
“While a clear production plan further reduces the possibility of an outright price war and supports the idea that crude oil prices will be range-bound, the risks to the range itself are now tilted towards the downside,” said Dan Struyven, a financial services analyst. Goldman Sachs said in a report dated June 2.
The Organization of the Petroleum Exporting Countries and its partners, known as OPEC+, agreed on Sunday on a plan aimed at limiting the global supply of oil until next year. However, the deal also allows eight countries, including Saudi Arabia, the United Arab Emirates and Iraq, to gradually increase production until the end of 2025.
For example, Saudi Arabia will increase its production to 9.978 million barrels per day in the fourth quarter of next year from the current level of 8.978 million barrels per day, according to a government schedule. The country has the capacity to pump about 12 million barrels per day.
OPEC+ estimated that demand for oil will rise this year by 2.2 million barrels per day, compared to Goldman’s estimate of 1.5 million barrels per day.
While OPEC+ said the increase in production “could be paused or reversed depending on market conditions,” Goldman Sachs is skeptical of such a change in plan.
“We are surprised that these countries are now announcing a detailed schedule for cuts in the context of recent bullish surprises for inventories,” the Goldman Sachs report said. “Announcing a surprisingly detailed hypothetical plan to undo additional cuts makes it difficult to maintain low production if the market turns out to be weaker than OPEC’s bullish expectations.”