US, WASHINGTON (NEWS OBSERVATORY) — Goldman Sachs said the oil market could face a record surplus of about 6 million barrels per day by April, given the more significant than expected increase in low-cost production, while there is a “wider” drop in demand due to for coronavirus.
Oil prices may record the maximum weekly drop since the financial crisis of 2008 after the failure of negotiations on the OPEC + deal last week.
“The reaction of high-cost producers with our forecast of Brent prices of $ 30 per barrel in the second quarter of 2020 will not be fast enough to offset the record inventory growth expected in the coming months,” the bank said in a March 12 note.
The surge in inventories could also force some land-based, high-cost companies to halt production, bank analysts added.
The bank estimates demand losses due to the rapidly spreading outbreak of coronavirus at about 4.5 million barrels per day, although it also indicated some signs of improved demand from China.
According to the bank, the increase in oil reserves over the next six months may be similar to the growth for 18 months in 2014-16.
On the other hand, global demand growth will decline by about 310,000 barrels per day in 2021 and will easily compensate for any quick reaction from producers at high costs, especially given that shale oil production is expected to fall by 900,000 barrels per day per the first quarter of 2021, the bank added.
“Finally, any potential resumption of escalation of geopolitical tensions in the Middle East will not prevent the bearish pressure of rapidly growing stocks, unless it leads to a historically major disruption.”
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