Goldman: U.S. Measures Could Support Oil Prices Near Term

Supply restraint by core-OPEC producers could push second-quarter Brent oil prices up to $30 a barrel, while U.S. measures to support the market could underpin prices in the near term, Goldman Sachs (NYSE:GS) said in a research note.

Citing Wall Street Journal reports that the United States was considering intervening in the ongoing Saudi-Russian price war and Texas regulators may curb oil output, the U.S. investment bank said such action would reduce global and U.S. domestic supplies.



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U.S. crude oil prices rose more than $1 on Friday, extending steep gains from the previous session, after U.S. President Donald Trump said he would “get involved” in the price war at an “appropriate time”.

While any U.S. measures could support the oil market into the second half of the year, however, Goldman Sachs said accompanying supply cuts would still not be enough to offset the 8 million barrels per day (bpd) demand loss – brought about by countries slowing economic activity to halt the spread of the coronavirus which has caused nearly 10,000 deaths worldwide.

“Medium-term, the impact of such policies will depend on their political viability given the upcoming presidential election,” Goldman Sachs said in the note issued on Thursday.

U.S. production quotas could create a $5 to $10 upside to Goldman Sachs’ West Texas Intermediate price forecast of $40 to $45 a barrel in 2021, the bank said.

While a return to U.S. oil supply management policies of the 1970s and 80s would “help support prices in the third and fourth quarter above our $30 and $40 a barrel Brent forecast, they would simply replace OPEC’s artificial price support policy with another,” the bank said, referring to the Organization of the Petroleum Exporting Countries, of which Saudi Arabia is a key member.



Oil extends recovery as Trump hints at intervening in Saudi-Russia price war

Oil prices recovered further on Friday, following steep gains in the previous session after U.S. President Donald Trump hinted he may intervene in the price war between Saudi Arabia and Russia at an “appropriate time”.

Prices were also supported by United States’ plans to buy up to 30 million barrels of crude oil for its emergency stockpile by the end of June, while regulators in the country’s largest oil-producing state Texas were reportedly considering curtailing production.

The more active West Texas Intermediate (WTI) crude futures contract for May was up 43 cents, or 1.7% at $26.34 a barrel by 0540 GMT. The contract rose as much as 5.5% to $27.34 per barrel earlier in the session.

U.S. crude futures for April (CLc1) also rose 43 cents to $25.65 a barrel. The front-month April contract, which spiked 24% on Thursday, expires later on Friday.

“An astonishing rebound in crude oil prices overnight was primarily driven by U.S’s consideration to intervene in the oil market by increasing strategic reserves, while slashing some oil production,” said Margaret Yang, market analyst at CMC Markets.

“The underlying issue is that global energy demand is falling sharply as more countries join the ‘lockdown’ club. The severity of Covid-19 for the macro-economy could exceed anyone’s expectation, and it could last for a long period of time.”

Brent crude futures (LCOc1) climbed 28 cents, or about 1%, to $28.75 per barrel.

The international benchmark rose 14.4% on Thursday in its biggest one-day gain since September, but was on track for its fourth consecutive weekly drop on Friday.

U.S. crude and Brent have both collapsed about 40% in the last two weeks since talks between the Organization of the Petroleum Exporting Countries and its allies, including Russia, broke down, which led Saudi Arabia to ramp up supply.

The Trump administration is considering a diplomatic push to get Saudi Arabia to close its taps and using the threat of sanctions on Russia to force them to reduce output, the Wall Street Journal reported, quoting unidentified sources.


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“The outsized gains by WTI reflect the hope and not the reality of the U.S. shale industry. Russia and Saudi Arabia have zero interest in helping US shale survive. Just the opposite, in fact,” said Jeffrey Halley, senior market analyst at OANDA.

“Once this reality finally sets in, I expect the rally in oil to disappear as quickly as it began.”





One thought on “Goldman: U.S. Measures Could Support Oil Prices Near Term

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