Goldman Sachs Inc. (NYSE: GS) announced its decision to downgrade its oil price forecasts for 2019, citing a surge in global production and resilient United States shale growth, as per CNBC.
The investment bank expects international benchmark Brent crude to average USD 62.50 a barrel this year, a notable decrease from its previous forecast of USD 70. U.S. West Texas Intermediate (WTI) is expected to average USD 55.50 in 2019, down from a prior estimate of USD 64.50, Goldman Sachs added.
According to CNBC, on Monday, oil prices continued to fall further from December’s 18-month lows, with OPEC and non-OPEC production cuts providing some support. Last month, OPEC agreed to remove 800,000 barrels per day (bpd) off the market, starting in 2019. 10 other producers decided to side with OPEC, which includes Russia, who increased total output cuts to 1.2 million bpd.
This alliance aims at reducing the global oversupply of oil, with the United States being the main culprit. Production in the U.S. grew by almost 20% to 12 million bpd by the end of 2018. That would make the U.S. the world’s largest oil producer, putting them ahead of non-OPEC Russia and OPEC’s figurehead Saudi Arabia.
Oil has gained more than 10% since Monday, marking five consecutive days of price gains, as stated by CNBC. WTI traded at around USD 49.07, up around 2.3%. Brent crude traded at USD 58.28, a 2% increase.
Financial markets have also offered support for the industry, with investors monitoring trade talks between the U.S. and China. An ongoing trade war between Beijing and Washington has escalated concerns of an economic downtown in the upcoming months, which would hurt demand for oil.
Analysts at Goldman Sachs commented, “The oil market has priced in an excessively pessimistic growth outlook.” They later added, “this sets the stage for prices to recover as long as global growth does not slow down below 2.5%.”