Wall Street is raising its forecasts on oil prices following a surprise OPEC+ announcement to cut production. The output reduction by some of the world's largest exporters, described by one analyst as 'geopolitical posturing', sent West Texas Intermediate (CL=F) and Brent (BZ=F) crude futures up more than 6%.
Goldman Sachs Commodities Research analysts increased Brent forecasts by $5/bbl to $95/bbl (vs. 90 previously) for December 2023, and to $100 (vs. 97) for December 2024.
“Today’s surprise cut is consistent with the new OPEC+ doctrine to act preemptively because they can without significant losses in market share,” wrote researchers led by Dean Struyven in a note to investors.
Analysts at Capital Economics also raised their price target writing, “We have revised up our end-2023 Brent forecast to $90 per barrel ($85 previously). Nonetheless, this forecast does not rule out bouts of price weakness as advanced economies enter recession between now and then."
The OPEC+ cuts consist of a voluntary reduction of 1.157 million barrels per day which will take effect in May. Additionally, Russia is extending its reduction of 500,000 barrels per day for the rest of the year.
Western sanctions on Moscow amid the Ukraine war have diverted Russian energy exports away from Europe, towards countries like China and India.
“While surprising, this cut reflects important economic and likely political considerations,” wrote Struyven at Goldman Sachs.
“On the economic side, our models suggest that this cut will likely increase Saudi and OPEC+ oil revenues, on net,” said the analyst.
On the political side, the move may be related to recent comments from United States Energy Secretary Jennifer Granholm, indicating it would be “difficult” to refill the U.S. strategic petroleum reserve this year. Those statements contradict prior indications from the Biden Administration that it wanted to refill the reserve when WTI was consistently at around $70.
“Aside from the impact on the physical oil market, it is hard not to think that there is some geopolitical posturing embedded in these voluntary cuts. It demonstrates the group’s support for Russia and flies in the face of the Biden administration’s efforts to lower oil prices,” wrote analysts from Capital Economics.
Ines is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre