Goldman Sachs says oil prices could be higher for much longer

Energy

Oil prices could stay at higher levels in the years to come as demand rebounds while supply remains tight, according to Goldman Sachs’ head of energy research.

Damien Courvalin, who is also a senior commodity strategist, said the market fundamentals warrant higher prices and that the bank’s forecast for Brent crude is $85 per barrel for the next several years.

“This is not a transient winter shock like it could be for gas. This is actually the beginning of a material repricing higher for oil,” he told CNBC’s “Street Signs Asia” on Thursday.

Goldman Sachs’ base case is for Brent to hit $90 per barrel by the end of the year.

U.S. crude futures were up 1.26% at $81.45 per barrel, while international benchmark Brent crude futures gained 1.24% to trade at $84.21 per barrel on Thursday afternoon in Asia.

The oil market is in “the longest deficit we’ve seen in decades,” and demand will continue to outstrip supply in winter, said Courvalin. The lack of upstream investment in oil supply while demand grows points to “sustained high prices” at least in the year ahead, he added.

‘Warning sign’

What’s happening in the coal market — where prices are at record highs because supply shrank faster than demand — is a “warning sign” for oil, Courvalin said.

Oil drilling activity hasn’t recovered much on the supply side, while demand is growing, he said, describing the market as being in an “entrenched deficit.”

“We’re facing potential multi-year deficits and the risk of significantly higher prices,” he said.

There needs to be a realization that the transition to cleaner energy will take a long time, and that calls to stop investing in hydrocarbon supply will only create “much higher energy prices in the coming years,” he said.

Oil pumping jacks, also known as “nodding donkeys,” in a Rosneft Oil Co. oilfield near Sokolovka village, in the Udmurt Republic, Russia, on Friday, Nov. 20, 2020.
Andrey Rudakov | Bloomberg | Getty Images

Despite oil futures climbing more than 60% this year and hitting multi-year highs, Courvalin said oil producers haven’t increased supply.

“Demand is rebounding further and we need to really start to see that investment,” he said.

Shale producers, however, are focused on returning cash to shareholders.

“That’s the key of the sustainability of higher prices,” he said, adding that he sees oil demand hitting new record highs in 2022 and 2023.

“The fundamentals actually very much support the view of higher prices than we’ve seen, pretty much since 2014,” he said.

— CNBC’s Patti Domm and Pippa Stevens contributed to this report.

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