Bloomberg
Prices have sunk, stockpiles ballooned and doubts about OPEC’s effectiveness grown, yet Wall Street hasn’t lost faith in oil’s recovery.
Crude plunged below $50 a barrel in New York last week on signs that OPEC’s production cuts aren’t clearing a global glut quickly enough, and that US shale drillers are ready to fill in any shortfall. Nonetheless, Goldman Sachs Group Inc., Morgan Stanley, Bank of America Corp. and Citigroup Inc. say they’re still confident prices will climb by the end of the year.
Given a bit more time, the world’s bloated oil inventories will decline as production cuts by the Organization of Petroleum Exporting Count-
ries and Russia take effect, while fuel consumption remains strong, the banks predict.
“The outlook is no less bullish,†said Seth Kleinman, global head of energy strategy at Citigroup, who sees crude exceeding $60 a barrel later this year. “Bringing oil inventories down is a messy process, but the OPEC cuts are real, demand in Asia is decent and ultimately the market is tightening.â€
There are plenty of reasons to doubt the bullish case. Despite OPEC’s unusually strong adherence with its own targets, US crude inventories are near record levels, the nation’s production at a one-year peak and the number of drilling rigs has almost doubled since May. OPEC’s partners, including Russia and Kazakhstan, have lagged behind in delivering their promised cuts, and Saudi Arabian production rebounded last month.
Still, oil demand remains poised to overtake supply in the second quarter and start depleting global inventories, according to Goldman Sachs, which sees US benchmark West Texas Intermediate topping $57 a barrel in three months.
“The oil market re-balancing is still progressing,†Jeff Currie, head of commodities research at Goldman Sachs in New York, said in a report on March 14. In a note two days earlier, Currie said “the market needs a little patience†for the effect of OPEC’s cuts to kick in.