International benchmark Brent Crude jumped towards $67 a barrel Tuesday with investment banks and traders predicting further market tightening and oil price gains.
Futures in New York climbed 1.6% on Tuesday after rising more than 4% in the previous session. In London, they rose back above $63 a barrel. The price started on Monday after Goldman Sachs forecast a bullish outlook for oil over the next few months.
Goldman expects Brent to reach $70 a barrel in the second quarter and $75 in the third, $10 above its previous forecasts, according to a note. Consumption will return to pre-virus levels by late July, while output from major producers will remain “highly inelastic” to the rising prices, the bank said. Socar Trading SA forecasts Brent hitting $80 this year, as the glut of inventories built up during pandemic-induced lockdowns is drained by the summer.
Also, it is apparent U.S. oil production and refineries will take a bit of time to resume their normal level of output after the Texas Freeze knocked out as much as 4 million bpd of production and 6 million bpd of refining capacity last week, according to IHS Markit. The production outages have created a tighter supply situation that has been absent for most of the pandemic.
Oil has gained more than 20% this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, an announcement that further boosted a rally triggered by Covid-19 vaccine breakthroughs.
Saudi Arabia and Russia, meanwhile, are heading toward an OPEC+ meeting next week with differing opinions on whether to add more supply to the market in April. Riyadh wants to maintain the current cuts, according to reports, while Moscow, as usual, wants to proceed with an increase.
“The OPEC+ decision looms as a major risk event for the oil market,” said Stephen Brennock, an analyst at PVM Oil Associates. Yet prices “are still expected to stay on a bullish trend.”
But the oil cartel and its allies could find managing supply to the oil market easier this year, as U.S. shale producers are still not rushing to accelerate output at $60 oil, OPEC sources told Reuters. As of the time of writing, Brent was trading at $65.30.
“The positive momentum continues in the oil complex, with investors unabashedly predisposed to a bullish view,” said Stephen Innes, global chief global market strategist at Axi. “There is far more optimism than fear.”