Goldman raises 2018 oil price forecast on OPEC commitment

A stronger than anticipated OPEC-led commitment to extend production cuts will support prices through 2018, according to analysts at Goldman Sachs.

In a research note published late Monday, Goldman lifted its Brent price forecast for next year to $62 a barrel, and its West Texas Intermediate projection to $57.50/Bbl. The revisions were up from $58/Bbl and $55/Bbl, respectively, CNBC reported.

Brent closed Tuesday at $62.45, down $1.28, while WTI closed at $57.47, down $0.89/Bbl, Kallanish Energy reports.

While the OPEC-led deal “leaves room for an earlier exit than currently scheduled, we now reflect this resolve in our supply forecast, with full compliance for longer and a more modest exit rate,” Goldman analysts said in the research note.

Oil prices have fallen in the days following OPEC’s deal with global producers on Nov. 30. The 14-member cartel, Russia and nine other crude producers announced plans to extend their 1.8 million barrels per day in output cuts until the end of 2018.

“Of course, risks remain and we see these as skewed to the upside into 2018 on the risk of an over tightening, either because of new disruptions, demand exceeding our optimistic forecast of OPEC letting the stock draw run hot,” Goldman analysts said.

However, Goldman said the response of shale oil and other producers to higher prices would likely incentivize OPEC and Russia to “pare back” their now greater capacity, thus leaving risks to prices skewed towards the downside over the long term, CNBC reported.

The price of oil plunged in mid-year 2014 due to weak demand, a strong dollar and booming U.S. shale production.

OPEC’s reluctance to cut output was also seen as a key reason behind the fall. But the oil cartel soon moved to curb production — along with other oil-producing nations — in late 2016.