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“We are pulling forward our forecasted oil tightness with Brent prices now expected to reach $65/bbl this summer as opposed to year-end,” analysts at Goldman Sachs noted in their latest commodities report.

Key quotes

“With vaccines being rolled out across the world, the likelihood of a fast-tightening market from 2Q21 is rising as the rebound in demand stresses the ability of producers to restart production.“

“While higher prices pose the risk of a shale response – as WTI spot prices are now at $50/bbl allowing for higher activity and positive free cash flows – we see this response remaining muted in the first instance, as higher capital costs and producer discipline curtail the US E&P’s reaction function. “

“Moreover, OPEC+ March production level will still be near the recent lows just as global demand starts rebounding sharply driven by warmer weather and rising vaccinations.” 

This points to the group potentially struggling to ramp-up output quickly enough, with our balance currently reflecting a 1.3 mb/d deficit in April-July despite OPEC+ increasing production by 4 mb/d, a historically tall order.”

“We continue to recommend a long Dec-21 Brent trade (currently trading at $53/bbl vs. our $65/bbl forecast) and expect sustained backwardation and lower implied volatility.” 

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