The extension of aggressive oil supply cuts by Russia and Saudi Arabia could propel oil prices into triple-digit territory by next year, Goldman Sachs (NYSE:GS) warned on Wednesday. This warning comes after both nations announced earlier this week that they would extend production cuts through the end of 2023, pushing Brent crude oil above $91 a barrel for the first time in ten months.
Goldman Sachs had already factored in the possibility of high oil prices and had previously predicted Brent oil to be $86 in December 2023 and $93 at the end of 2024. However, the bank now identifies "two bullish risks" to its forecast. Firstly, it expects Saudi oil supply to be 500,000 barrels per day smaller than previously anticipated, which could add $2 to the per-barrel price of oil. Secondly, the bank warned that some of its assumptions for oil production may be incorrect if the OPEC+ cut extensions continue.
Before this announcement, Goldman Sachs expected that in January 2024, the countries would bring back half of the 1.7 million barrel per day cut that was announced in April. Now there's a possibility of an even longer extension. If OPEC+ keeps the 2023 cuts fully in place through end-2024 and Saudi Arabia only gradually raises production, Brent oil prices could climb to $107 a barrel in December 2024.
However, Goldman Sachs stressed that this is not their "baseline view" as such a strategy could have negative repercussions. Triple-digit oil prices could prompt U.S. shale producers to increase their supply to lower prices and drive more investment into clean energy. Additionally, OPEC+ might not want $100 oil due to the "political importance of US gasoline prices."
The U.S. administration is focused on ensuring stable energy supply and lower prices for consumers at the gas pump. U.S. National Security Advisor Jake Sullivan emphasized President Joe Biden's commitment to delivering relief to consumers at the pump amidst these developments.
Goldman Sachs also suggested that OPEC+ was unlikely to rush boosting output and that a potential sale of an additional stake in Saudi Aramco (TADAWUL:2222) might further incentivize Riyadh to exercise its pricing power.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.