The commodities team at Goldman Sachs still believes that holding long positions in Brent crude will be profitable, but in a departure from 2023 leanings, the bank said that Brent prices may dip to $84/bbl by December as lower valuation trumps likely inventory declines in the third quarter.
In a note sent to clients Monday, Goldman observed that the front-month price for Brent was approaching $90/bbl even as the Israel/Hamas war moved toward a potential de-escalation.
The investment house said it still supports holding long positions in Brent for out months as a hedge against geopolitical supply shocks, with the appeal tied to attractive "roll yields." The backwardation in crude -- which values front-month oil at $5.10/bbl above December barrels -- rewards investors with more oil as front months expire and money is rolled into other contracts.
The bank said it sees a likely total return of 24% on those rolls in 2024 and suggested that the rolls will "more than offset modest spot losses."
Goldman's analysis detailed a mixed view of high-frequency fundamentals. On the bullish side, U.S. Lower 48 crude production and Canadian output are both running about 100,000 b/d below expectations. Wildfires in Alberta oil sands could pose additional downside to Canadian supply.
In addition, Russian production is about 300,000 b/d below last year and Goldman cited yet another drone attack in Russia over the weekend, with an impact at the Slavyansk refinery.
And finally, a drop of about 30 million bbl in long positioning by managed money is also mentioned, hinting that there is no speculative overhang currently.
On the bearish side, Chinese demand is pegged at a flat 16.2 million b/d with plenty of upcoming maintenance downtime for state-owned refineries. Goldman also has a "nowcast" that shows OECD commercial stocks increasing by 15 million bbl last week, thanks to oil-on-the-water coming ashore.
And perhaps most significantly, the bank posits that global oil commercial stocks built by 900,000 b/d in the last 90 days.
Goldman didn't change some of its open trade recommendations. The investment house previously forecast "structurally strong diesel" with a long position in European gasoil cracks versus Brent. That position showed a $2.26/bbl loss as of Monday, but the bank has maintained its recommendation.
The bank did cash in on a trade for summer gasoline tightness. It opened that trade back in October at $11.44/bbl for EBOB versus Brent. It recently closed it out at a $17.28/bbl spread for a tidy $5.84/bbl profit.
This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.
--Reporting by Tom Kloza, tkloza@opisnet.com; Editing by Michael Kelly, mkelly@opisnet.com
(END) Dow Jones Newswires
04-30-24 1159ET
