Why Goldman Sachs Believes Oil Won’t Go Higher

By Tsvetana Paraskova


Despite the somewhat sudden end of the U.S. sanction waivers for all Iranian oil buyers, Goldman Sachs doesn’t see oil prices rallying much higher.

“While we acknowledge the near-term upside price risks, we reiterate our fundamentally derived Brent price trading range of $70-75 per barrel for the second quarter of 2019,” Reuters quoted the investment bank’s note from Monday.

Before the U.S. announcement on Monday that it would not be extending waivers to anyone after they expire in May, Goldman Sachs was one of the investment banks that don’t see oil prices reaching $80 a barrel as they did in Q3 last year because there’s only modest upside to price gains.

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After the announcement of the end of the waivers, which caught many analysts off guard, Goldman Sachs continues to believe that the upside is modest and that the upside price risk will just be seen in the near term.

Goldman continues to see limited upside because of the high uncertainty whether OPEC and its Russia-led non-OPEC allies will extend their production cut pact after June this year.

The U.S. “maximum pressure” to choke off all Iranian oil sales is making the OPEC+ pact even more vulnerable to break-up than before, because the U.S. appears certain that Saudi Arabia and the United Arab Emirates (UAE) will offset lost Iranian barrels.

Saudi Arabia, for its part, said that it “will be consulting closely with other producing countries and key oil consuming nations to ensure a well-balanced and stable oil market.”

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On Monday and Tuesday, oil prices spiked on the news that the U.S. is exerting maximum pressure on Iran, with Brent Crude and WTI Crude rallying to near six-month highs.

Barclays analysts see the end of the waivers potentially adding at least $5 a barrel to their current Brent Crude average forecast of $70 a barrel this year, but not impacting prices in the longer term.

By Tsvetana Paraskova for Oilprice.com


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