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Goldman cuts oil forecast on ‘lack of clarity’ over G-7 Russia oil price cap, China Covid outbreaks

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Crude oil storage tanks at the Juaymah Tank Farm in Saudi Aramco’s Ras Tanura oil refinery and oil terminal in Saudi Arabia, in 2018.
Simon Dawson | Bloomberg | Getty Images

Goldman Sachs lowered its oil price forecast by $10 to $100 per barrel for the fourth quarter of 2022, citing rising Covid concerns in China and lack of clarity over the Group of Seven nations’ plan to cap Russian oil prices.

“The market is right to be anxious about forward fundamentals, due to significant Covid cases in China and a lack of clarity on the implementation of the G7’s price cap,” Goldman economists including Jeffrey Currie said in a note, adding that more lockdowns in China would be equivalent to the deep production cuts imposed by OPEC+ of 2 million barrels a day.

China recorded recorded three Covid deaths over the weekend, the country’s first deaths from the virus since May this year.

China’s capital Beijing tightened Covid measures in the last three days as the local case count climbed to several hundred per day.

The economists added that the possibility of more lockdowns in the world’s top importer of oil will dent demand from it even further.

Crude oil storage tanks at the Juaymah Tank Farm in Saudi Aramco’s Ras Tanura oil refinery and oil terminal in 2018. Crude prices fluctuated in recent months, rising to more than $120 in early June amid growing fears about a global recession, subsequently falling to around $90 per barrel after OPEC+ slashed production.
Simon Dawson | Bloomberg | Getty Images

“China’s Covid cases are at Apr-22 highs, yet, the new policy reaction function is unknown … we lower our expectations for China demand by 1.2 [million barrels per day] for the quarter (to 14.0 mb/d), anticipating further lockdowns from here,” the note stated, adding that China’s current crude demand falls short of Goldman’s expectations for October to November by 800,000 barrels a day.

Investors ‘disappointed’

Crude prices fluctuated in recent months, rising to more than $120 in early June amid growing fears about a global recession, subsequently falling to around $90 per barrel after OPEC+ slashed production.

Both futures last hovered around two-month lows: Brent crude futures shed less than a dollar, or 0.9%, to stand at $86.83 per barrel and U.S. West Texas Intermediate futures dropped 1.09% to $79.21 per barrel.

Also contributing to Goldman’s downward revision are the higher than expected volumes of production and exports of oil from Russia, just two weeks before the EU embargo takes effect in early December.

“Investors have been left disappointed by higher than expected production and export flows from Russia. This is despite just two weeks remaining before the EU embargo takes effect on crude, alongside the G-7 price cap, for which more details are set to be announced next week,” the investment bank said in the note.

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