Oil will climb back above $100 a barrel this year and could face serious supply problems in 2024 as spare production capacity runs out, according to Goldman Sachs Group Inc.
With sanctions likely to cause Russian oil exports to drop and China’s demand to recover as the country ends its Covid Zero policy, prices will rise above $100 from the current level of around $80, according to Goldman.
The lack of spending in the industry for the production needed to meet demand will also be a driver of higher prices, and this lack of capacity could be a big problem in 2024, said analyst Jeff Currie on the sidelines of a conference in Riyadh, Saudi Arabia. , on Sunday.
“A commodity super cycle is a sequence of price spikes with each higher high and each lower low,” said Currie, who heads commodities research at Goldman. In May, the oil market should have a supply deficit compared to demand, he said. This could use up a lot of unused global producer capacity, which would be positive for prices, he said.
Oil prices have been volatile for several years, falling below $20 during the coronavirus pandemic before rising to near $130 after Russia’s invasion of Ukraine disrupted supplies that have fallen short of global demand. Transportation fuel costs rose higher as refineries stretched beyond capacity, before retreating as countries sought alternatives.
Saudi energy minister Prince Abdulaziz bin Salman also used his comments at the Riyadh conference on Saturday to decry the lack of investment in refining capacity that has left the world undersupplied. He reiterated that OPEC+ would remain cautious in deciding when to increase output.
Saudi Arabia is the de facto leader, along with Russia, of the group that brings together the Organization of the Petroleum Exporting Countries and other producers in an effort to balance supply and demand while maintaining reasonable prices for members. Prince Abdulaziz said that OPEC+’s efforts to limit supply have saved the oil market when demand has fallen during the pandemic.
Currie reiterated Goldman’s view that OPEC+ will lift production restrictions and increase output later this year. The OPEC+ market monitoring committee this month recommended that the group keep oil production unchanged.
“Right now, we’re still in balance with a surplus because China still hasn’t recovered,” Currie said. Capacity will become an issue later this year when demand outstrips supply, he said.
“Are we going to run out of spare production capacity? Potentially in 2024 you’re going to be in serious trouble.
Learn how to navigate and build trust in your business with The Trust Factor, a weekly newsletter that examines what leaders need to succeed. Log in here.