Oil Plunges As Goldman Slashes Year-End Price Forecast

Oil prices are plunging this morning, erasing all of the pre-Saudi production cut rumor rally gains with WTI back to a $67 handle.

The drop appears driven by  weak growth in major economies and shrugs off OPEC+'s attempts last week to stabilize prices by extending more than 1.1-million barrels per day of production cuts through 2024, while Saudi Arabia will cut output by one-million bpd in July as it continues to battle short sellers it blames for weak prices.

"Saudi's Energy Minister ... reiterated his view a discrepancy exists between the futures market and the physical market. A gap that in our opinion will persist until the macroeconomic outlook stabilises," Saxo Bank noted.

Today's weakness comes after Goldman Sachs slashed its year-end oil price forecast to $86 per barrel Brent, down from a previous projection of $95, as it sees higher supply from sanctioned oil exporters offsetting the recent OPEC+ and Saudi cuts amid potentially underwhelming demand. 

Goldman analysts have been bullish on oil in recent months, expecting tight markets in the second half of the year. Less than two weeks ago, the Wall Street bank said it expects a rally in oil and commodities, after the biggest-ever destocking in commodities that is currently underway. But even back then, Goldman’s analysts acknowledged their price calls had been wrong so far this year. 

“Bulls, like ourselves, find comfort in the fact that end-use demand across the commodity complex has not shown recessionary signs and investment in supply remains elusive,” Goldman’s analysts said in the note at the end of May, as carried by Bloomberg.

“But this misses the point that we were wrong on price expectations.”

As OilPrice.com reports, despite the unilateral Saudi cut and the extended production reductions at the broader OPEC+ group, Goldman Sachs now sees little chance of an oil price spike later this year, expecting Brent at $86 a barrel in December, and WTI Crude at $81, down from $89 per barrel in the previous forecast.

Resilient Russian oil supply and higher-than-expected supply from Iran and Venezuela will weigh on prices, according to the bank.

However, Goldman analysts expect commodities to come roaring back should recession concerns prove to be misplaced.

“The absence of a recession would likely lead to higher oil and commodity prices as well as higher rates, to which equities would likely react poorly,” they said.