Goldman Sachs Sees Global Oil Market Returning to Surplus as Iran Risks Ease
Synopsis
Key Highlights Goldman Sachs expects the global oil market to return to oversupply. The surplus is expected at just over 3 million barrels a day next year The planned replenishment of the strategic petroleum…
Key Highlights
- Goldman Sachs expects the global oil market to return to oversupply.
- The surplus is expected at just over 3 million barrels a day next year
- The planned replenishment of the strategic petroleum reserve will take out over 1 million barrels per day.
- Flowing traffic through the Strait of Hormuz is estimated to raise world inventories.
- Goldman said shipping firms are more focused on regulatory clarity than possible transit fees.
Goldman Sachs predicts the global oil market will be pushed back into a state of oversupply after the fallout from the Iran conflict abates and shipping passes through the Strait of Hormuz normally.
The bank’s co-head of global commodities research, Samantha Dart, said in a report yesterday that Goldman is looking for the average global oil surplus to be just over 3 million barrels per day next year. In turn, countries refilling their Strategic Petroleum Reserves (SPR) are likely to support a tighter market, but this might not absorb all the surplus.
Goldman anticipates that rebuilding the global SPR will add more than 1 million barrels of oil to world markets, resulting in a supply overhang approaching 2 million barrels per day.
Market Outlook and Building of Strategic Reserves
Recent developments quashed hopes of prolonged disruption in the Middle East shipping lanes; benchmark crude prices fell nearly 30% from their peak levels last quarter, wiping out post-Iranian conflict gains as an interim agreement was struck between the United States and Iran, followed by a recovery in shipments via the Strait of Hormuz.
In a rare move amid the conflict, the International Energy Agency (IEA) agreed to release a total of 400 million barrels from emergency reserves to restore balance in supply and prices. Those stores, however, are expected to be replenished.
The U.S.’s Strategic Petroleum Reserve has declined from 415 million barrels at the end of February to 331 million barrels on June 19, a new low for this emergency supply since 1983.
Goldman’s view mirrors that of Morgan Stanley, which cut its oil price forecasts twice in just over two weeks, the most recent out Tuesday, and also expects a return to an oversupplied market next year.
Even after the last two recent attacks and a drone threat to vessels operating in the Strait of Hormuz, traffic within the strait has been recovering. Iran has repeatedly stated its commitment to managing navigational movements within the waterway that connects it with international waters, possibly in collaboration with Oman.
According to Goldman, potential transit fees have elicited less alarm from shipping companies than definitive regulatory standards. The bank said a previously cited informal toll of about $1 a barrel also won’t have much broad influence on energy prices.
Source: Bloomberg
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