“In short, inventories are coming down faster than we expected and OPEC is succeeding at rebalancing the oil market,” wrote Francisco Blanch, head of global commodities and derivatives research at Bank of America Merrill Lynch.
Goldman Sachs is not ready to raise its $62 target on Brent and $57.50 forecast for U.S. crude in 2018, but says there’s a growing risk that global inventories will fall too quickly and push up prices.
U.S. drillers are likely to start pumping more oil following a sharp rally in prices since December, Goldman analysts say. But the bank believes there will be a lag in the price response, which could allow prices to keep running up.
Meanwhile, global oil stockpiles in developed countries could actually fall below the five-year average — the level OPEC is targeting — as inventories approach normal levels, oil demand potentially outstrips Goldman’s estimate and OPEC possibly cuts output too deeply.
“First, the lagged reporting of inventory data and OPEC’s own inertia create risks that the group exits the cuts well after inventories have normalized,” wrote a team led by Jeffrey Currie, Goldman’s global head of commodities research. “Second, we continue to believe that OPEC’s 5-year average inventory target is too aggressive.”
OPEC, Russia and other producers have agreed to keep 1.8 million barrels a day off the market through the end of the year. Several oil ministers have said it’s too early to discuss an exit strategy for the deal.
Currie and his colleagues also say that “oil inventories should be adjusted for demand levels to correct for a steadily growing oil market.”
