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Goldman Sachs says oil price to reach $50 a barrel in second half of 2016

16 May 2016

On May 16, US investment bank Goldman Sachs said the oil market was now in deficit due to various supply disruptions, after a long period of oversupply which pushed crude prices down to 13-year lows at the start of 2016. As a result, the bank raised its US crude price forecast to $50 a barrel for the second half of 2016, from $45 in March.

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Stock image

The Goldman report said: “The oil market has gone from nearing storage saturation to being in deficit much earlier than we expected.... The market likely shifted into deficit in May ... driven by both sustained strong demand as well as sharply declining production.”

The report caused an immediate jump of 1.8% in US crude prices to $47.06 per barrel, while North Sea Brent crude also rose 1.8% to $48.71 per barrel.

Even though Gulf countries are producing record amounts and Iranian crude is also now on the market after sanctions were lifted, several significant disruptions have tightened the market.
Worsening sabotage of oil facilities and pipelines in Nigeria’s Delta is the main factor, but the wildfires in Canada’s oil sands region, closure for maintenance of the Ekofisk and Buzzard fields in the North Sea, the chaotic situation in Libya, rebel attacks on pipelines in Columbia, a fall in exports from Venezuela and declining US shale production have all shrunk supply.

Goldman said that the market would return to surplus in the first half of 2017 as prices of around $50 per barrel in the second half of 2016 would result in exploration and production activity picking up.

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