Oil Gets Back in the Groove as Goldman Leads Bullish Forecasts

Updated on
  • The bank says rebalancing achieved earlier than expected
  • U.S. benchmark rallies 1.7 percent, the most in a week

Oil shook off some of the pessimism that struck the market in the past few days to post its best gain in a week as forecasters paint a rosier picture for supply and demand.

Futures settled 1.7 percent higher in New York as Goldman Sachs Group Inc. sees Brent crude reaching $82.50 in London within six months and said the rebalancing of the oil market has likely been achieved, earlier than expected. The dollar declined, further adding support to commodity prices.

One of the strongest signs that crude has turned a corner is how futures have behaved: The closer the delivery, the higher the price. That pattern, known as backwardation, is typical of times when demand is rising and supplies are tightening, and it hadn’t been like that since 2014.

Investor sentiment remains positive due to strong economic data and general weakness in the dollar, Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, said by telephone. “All this, when combined with a futures curve that is in backwardation, tends to be an open invitation for being long oil.”

The U.S. benchmark has remained above $60 a barrel since late December, lending support for American drillers to pump more. U.S. output surged above 10 million barrels a day for the first time in more than four decades in November. Meanwhile, production from the Organization of Petroleum Exporting Countries in January added just 20,000 barrels a day.

“It’s still a bullish demand story,” Kyle Cooper, director of research at IAF Advisors in Houston, said by telephone. “Even though U.S. production is going to continue to climb, it’s not going to match demand. That’s the mantra right now.”

West Texas Intermediate crude for March delivery advanced $1.07 to settle at $65.80 a barrel on the New York Mercantile Exchange. Total volume traded was about 12 percent above the 100-day average.

See also: North Dakota faces labor shortage as Bakken tries to boom again

Brent for April settlement jumped 76 cents to end the session at $69.65 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $4.10 to April WTI. The March Brent contract expired Wednesday.

The Bloomberg Dollar Spot Index, a gauge of the currency against 10 major peers, weakened for a third day, falling as much as 0.5 percent.

“The decline in excess inventories was fast-forwarded in late 2017 by stellar demand growth, high OPEC compliance, heavy maintenance as well as collapsing Venezuela production,” Goldman analysts Damien Courvalin and Jeff Currie said in the report.

The bank also said rising U.S. shale supply actually will be needed to keep the market steady in the near term, since any ramp-up in OPEC output will lag the rebalancing.

Oil-market news:

  • Gasoline futures rose 0.1 percent to settle at $1.8958 a gallon, while diesel gained 1.2 percent.
  • OPEC shipments will rise to 24.31 million barrels a day in the four weeks to Feb. 17 versus the period to Jan. 20, according to tanker-tracker Oil Movements.
  • ConocoPhillips has begun deploying the spoils of the oil price rally, announcing a dividend boost and share buybacks along with a $400 million expansion in Alaska in its fourth-quarter earnings report.

— With assistance by Tsuyoshi Inajima, Alex Longley, Heesu Lee, and Grant Smith

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