GOLDMAN SACHS - RECENT NOTENote from another board - source is apparently GS...
Oil fundamentals are finally showings signs of improvement, likely accelerated by the recent historic collapse in prices. Supplies have started to decline quickly, with signs of demand improving even ahead of lockdown measures being eased. While the inflection into a deficit is still a few weeks away, it now appears likely that the market is passing its test on storage capacity.
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With the market's rebalancing now in motion, we expect a three-stage oil price rally, from relief, to cyclical tightening, and finally structural repricing. With financial crude futures markets set to trade July barrels in just a couple weeks, we believe the recent rally can extend further in May, back to cash-cost levels ($25/bbl for WTI), albeit with still-high price volatility.
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Beyond this relief rally, we caution that the oil bull market that we forecast will take time and require patience. Oil remains a physical asset and will therefore need to first price to clear the substantial inventory overhang through 2H20, leaving the commodity to lag the rally in related anticipatory financial assets like equities.
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During the cyclical stage of the recovery, we expect the inventory normalization process to first drive a flattening of the Brent forward curve around $30/bbl in 3Q20. As the deficit grows, this will be followed by a steady move higher in spot prices due to a steepening level of backwardation through 2Q21.
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Higher decline rates, sticky shut-in capacity losses and a much higher cost of capital for the industry will finally set the stage for both higher OPEC market share and prices, the structural consequence of the ongoing violent rebalancing, leading us to raise our 4Q21 Brent forecast to $65/bbl (from $60/bbl).