Goldman sees upside to $115/b oil price forecast after 'insufficient' IEA stock release

Global crude prices risk surging over $115/b over the coming month despite a pledge by the International Energy Agency to release emergency oil stocks following Russia's invasion of Ukraine, Goldman Sachs said in a note released late March 1.

The IEA agreed March 1 to release a total of 60 million barrels of oil stocks to calm crude prices in response to Russia's invasion of Ukraine with the US providing half of the total inventories.

But the stock release pledge represents only a one-month offset to a potential disruption of one-third of Russia's 6 million b/d seaborne oil exports and is insufficient to prevent crude prices spiraling higher, Goldman said in the note.

"This one-off SPR stock release is dwarfed by the potential magnitude of Russia's export disruptions," Goldman said.

"Essential to the lack of price relief on today's announcement is the already critical tightness of the global oil market, even before the escalation in Ukraine ... this leaves risk to our one-month $115/b Brent price forecast still skewed to the upside."

May ICE Brent futures contract surged to almost $113/b in early trading March 2 to hit fresh seven-year highs, taking its two-day gains at one point to 15%. At 0812 GMT, the contract was $6.15/b (5.86%) higher than the previous close at $111.12/b. The last time Brent crude futures traded above $115/b was June 2014.

Global sanctions against Russia have already triggered disruptions to Russian crude exports as shippers and buyers are reluctant to move barrels despite energy carve-outs in the sanctions announced so far.

Goldman estimates Russia's net crude and product exports are currently at 7.3 million b/d with 6 million b/d of seaborne flows at risk.

This risk stems from limitations in sourcing shipping insurance, letters of credit, and crews unwilling to head into such high-risk locations, impacts sometimes referred to as 'shadow sanctions'.

Goldman said it also estimates a need to build 400 million barrels of oil stocks by the end of 2023 in order to normalize inventories in days of demand to 2019 levels.

S&P Global Commodity Insights estimates that, in the case of a major loss of Russian supply, a combination IEA reserve releases and higher Saudi Arabian and UAE crude production could at most make up for 2 million-3 million b/d over the next couple of months.

That number would quickly fall to just 1 million-1.5 million b/d in the third month, although the assumed full return to the JCPOA Iran nuclear deal could add another 1 million b/d of supply by August.