Goldman Part 2
While today’s announcement lifts some of the uncertainty on whether and when OPEC
and Russia would increase production, we do not view this as a bearish development:
This supply response is occurring because of the existing tightness ! of the oil
balance, with inventories now well below their 5-year average. Further, the strength
in demand (and its likely underestimation), the rise in disruptions, and the looming
constraints to further shale production growth are all putting the oil balance on a
path of significant shortages. We recently estimated that a lack of an OPEC/Russia
supply response would lead inventories to historically low levels by 1Q19. In short,
this supply response was needed.
As a result, even if today’s headlines provide a cap on prices in ! the short term, we
reiterate our $82.5/bbl 3Q18 Brent price forecast (which effectively embedded such
a supply response) and still see risks to prices in 2H18-2019 as skewed to further
upside. Historically, prices have declined after the announcement of OPEC
production increases, however, when these occurred in a strong demand
environment like today, prices were on average 8% higher than pre-announcement
two months later.