Goldman Sachs says oil's biggest problem could be over— and now crude is on a charge
The price of oil is surging on Monday thanks to a production disruption in Nigeria, continued worries about the amount of crude that Venezuela will be able to produce as the country's economy continues to plunge deeper into crisis, and a note by Goldman Sachs saying the oil market's oversupply problem may have come to an end.
At about 3:40 p.m. BST (10:40 a.m. ET), both major benchmarks — Brent crude and West Texas Intermediate — are up nearly 3%, with Brent at $49.12 and WTI trading at $47.61, extending to highs not seen since October.
Here's how both benchmarks look Monday:
Investing.com
Investing.com
One of the big drivers of oil's surge Monday appears to be Goldman Sachs, which has long been bearish on the state of the oil markets but which said in a note to clients Sunday that it thought the oil market had "gone from nearing storage saturation to being in deficit much earlier than we expected."
The move from oversupply to deficit has been "driven by both sustained strong demand as well as sharply declining production," Goldman analysts led by Damien Courvalin said.
Here's more from the bank:
The physical rebalancing of the oil market has finally started. While supply and demand surprised to the upside commensurately in 1Q16, leaving the market oversupplied by 1.4 mb/d, we believe the market has likely shifted into deficit in May. The 2Q16 deficit that we now forecast is occurring one quarter earlier than we expected mid-March, driven by both sustained strong demand as well as sharply declining production. The shift in OECD stocks will be further exacerbated by the ongoing strong Chinese inventory builds.
Oil prices also have been helped by a militant attack on an offshore facility run by Chevron in Nigeria's Niger Delta. That news caused concerns about output from Africa's biggest producer, boosting sentiment. Along with that attack, continuing fears that Venezuela's crisis-hit economy could affect its ability to produce oil have also boosted prices.
Accendo Markets' Mike van Dulken notes that the market is also continuing to react to another fall in the number of oil rigs in use in the US last week (emphasis his):
The Baker Hughes rig count was also price positive for oil with another drop in the number of operational US drilling rigs — an 8th straight weekly decline — serving to reinforce existing supply issues. Brent has since made a strong breakout above $48 while WTI is struggling to better $47. Note a reduced spread between the two oil markers.
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