Oct 3 (Reuters) – Goldman Sachs said a planned production cut by the Organization of the Petroleum Exporting Countries (OPEC) and its allies was justified by the sharp decline in oil prices from recent highs and supported his bullish view.
OPEC+ is discussing production cuts of more than one million barrels per day (bpd), sources told Reuters, and voluntary cuts by individual members could add to that, making the cut the more important since the start of the COVID-19 pandemic.
Oil prices jumped more than $3 a barrel in response.
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“We reiterate both our bullish view on oil as well as our preference for long crude oil positions through year-end,” the bank’s commodities research division wrote Monday.
Despite one of the tightest markets in recorded history, Goldman said the decline could be justified by the 40% drop in prices from their June peak and made possible by the lack of elasticity of the market. supply, given the slowdown in shale activity and the depletion of reserve capacities.
“The collapse of investor participation, leading to lower liquidity and prices, is also a likely powerful catalyst for such a reduction, as it would increase the carry of oil and begin to recover investors who have instead turned. toward USD cash allocation following aggressive Fed hikes.”
Goldman Sachs last week cut its 2023 oil price forecast due to expectations of weaker demand and a stronger US dollar, but said lingering global supply disappointments had no effect. only strengthens its long-term bullish outlook.
The reported reduction would also limit price declines if economic growth were slower than expected next year, Goldman said.
“This reduction may help address the large exodus of oil investors that has left prices underperforming both fundamentals and other cyclical asset classes,” the note said.
While exceptional, this cut makes sense because it maximizes the group’s revenue today with minimal sacrifice of future earnings, Goldman added.
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Reporting by Deep Vakil in Bengaluru Additional reporting by Swati Verma Editing by Mark Potter
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