Crude oil production decline to support modest upside in Brent prices, says Goldman Sachs

Goldman Sachs said on November 27 that a decline in crude production from Iraq, Kazakhstan, and Russia, in compliance with OPEC+ production cuts, is expected to support a modest near-term upside to Brent prices, according to a report in Reuters.

Goldman Sachs said a rising adherence to these cuts indicates stronger collaboration among OPEC+ members to stabilise the market.

“Any ramp-up in OPEC+ production will be gradual and data-driven,” Goldman Sachs said in a note, as quoted by Reuters. Production from Iraq, Kazakhstan, and Russia fell by 0.5 million barrels per day in November, it said.

Saudi Arabia is also likely to extend its voluntary oil production cuts following the recent price dip, with Goldman now projecting that these cuts will last until April 2025 instead of January.

Despite this, Brent futures have mostly traded within the $70-80 range this year and were below $74 on November 27.

Scenarios of supply disruption as per Godman Sachs

In a report on October 11, Goldman Sachs outlined potential oil price scenarios in case of supply disruption:

2 million barrels per day disruption (Temporary): If a six-month, 2-million-barrel-per-day supply disruption occurs in Iran, Brent prices could temporarily peak at $90 per barrel if OPEC producers quickly offset the shortfall. Without OPEC intervention, prices could rise to the mid-$90s in 2024.

1 million barrels per day disruption (Persistent): A persistent disruption of 1 million barrels per day due to tighter sanctions enforcement could push Brent to the mid-$80s if OPEC gradually offsets the loss. Without intervention, prices could peak in the mid-$90s by 2025.

Price forecasts

Goldman Sachs has maintained its average Brent price forecast at $76 per barrel for 2025, despite a predicted surplus in that year. While geopolitical risks and OPEC+ production cuts have created short-term deficits, the market outlook for next year remains uncertain.

At its most recent meeting on November 3, OPEC+ delayed a planned December output hike by one month. Sources have suggested the group may push this further, reflecting its cautious approach to production increases.

Goldman Sachs previously revised its Brent forecast to average $80 per barrel for 2023, citing a surplus outlook for 2025, even with ongoing geopolitical uncertainties.

(With inputs from Reuters)