London — Goldman Sachs has cut its average price forecast for Brent crude oil this year by 11% as growing volumes of US shale oil reach the market, production costs fall and uncertainty continues to hang over the pace of global oil demand growth.
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Low-cost production capacity is growing both within OPEC and the US, where new pipelines are set to boost supplies of Permian shale oil into the global oil market this year, Goldman said in a note Monday. The year is also starting with higher global oil stocks while weaker than previously expected demand growth expectations remain a constraint on prices, it said.
Brent spot prices are expected to average $62.5/b this year, down from $70/b previously, with US benchmark WTI seen averaging $55.5/b, down from a $64.5/b, Goldman said. The bank's respective oil price forecasts for 2020 are unchanged at $60/b and $54.5/b.
Goldman said, however, that -- despite the recent rebound in oil prices over the last two weeks -- current price levels remain undervalued relative to both existing and forward fundamentals.
Spot Brent crude was trading at $58.30/b in early European trading Monday, a 17% rebound after slipping to an 18-month low below $50/b on December 26.
"At current price levels and term structure, we believe that the oil market sell-off has overshot current and forward fundamentals, even after accounting for the greater growth uncertainty and recent rally," Goldman said.
"We expect prices to recover further, although growth uncertainty will likely require strengthening physical oil markets to drive this rally, with encouraging evidence that the OPEC cuts are starting."
On demand, Goldman said it remains more upbeat over the strength of the global economy this year than most, predicting the 2019-2020 oil growth outlook is now normalizing near the five-year average levels of 1.4 million b/d.
Last week, S&P Global Ratings cut its average crude price assumptions for 2019 to $55/b from $65/b in response to a worsening picture for global demand.
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--Edited by Alisdair Bowles, email@example.com