Goldman Sachs said the rally in oil prices has paused after Brent prices briefly reached the US$65/bbl summer forecast it first set-out last August, on the realization that frigid US weather will only marginally tighten the global market and over concerns for a return of Iranian barrels.
Goldman now forecasted that oil prices will rally sooner and higher, driven by lower expected inventories and higher marginal costs - at least in the short run - to restart upstream activity.
The research house further believes that this additional rally will be supported by the current repositioning for a reflationary environment with investors turning to oil, buying a lagging real asset that benefits from a stimulus-driven recovery, and has demonstrated an unmatched ability to hedge against inflation shocks.
Goldman forecasted Brent prices will reach US$70/bbl in 2Q and US$75/bbl in 3Q ($10 above its prior forecasts). The research house expects this rally to be driven by both rising long-dated prices as well as a sustained steep level of backwardation.
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