Are oil prices heading back up? After months of hitting record lows, the black gold seems to be making a comeback. According to Goldman Sachs Group, the expected deficit in oil seems to have been reached earlier than expected flipping oil prices and sending them skyward.
Analysts at Goldman bank reported that after almost two years of oversupply, the oil market had hit a shortfall. The announcement sent International Brent crude futures to $48.50 per barrel up 67 cents, or 1.4 percent, from their last settlement; U.S. West Texas Intermediate crude futures were up 68 cents, or 1.5 percent, at $46.89 a barrel.
Goldman raised its U.S. crude price forecast to $50 a barrel for the second half of 2016 from a $45 estimate in March.
Oil Shortages in Nigeria and Venezuela
Oil’s turnaround resulted from supply shortages in Nigeria, Venezuela, the U.S. and China all of which were flush with the crude just months ago. In Nigeria, oil major Exxon Mobil suspended exports from the country's biggest crude supplier, Qua Iboe, and other producers after it experienced disruptions from acts of sabotage. The country’s output was cut to its lowest in decades at around 1.65 million barrels per day (bpd).
The economic crisis in Venezuela has cut oil production down by at least 188,000 bpd since the start of the year and in China, output fell 5.6 percent to 4.04 million bpd in April, compared with the same time last year.
In the United States, where just months ago oil developers were seeking places to store their surpluses, a wave of bankruptcies as brought crude production down to 8.8 million bpd, 8.4 percent below 2015 highs. And the raging wildfires that hit the oil fields in the western provinces of Canada forced the closure of the country’s supplies which helped lift the price of the crude temporarily before dropping as output recovered.
OPEC Oil Still Up
While oil shortages are being reported in some of the major oil producing countries, supplies continue to increase from the member nations of the Organization of the Petroleum Exporting Countries (OPEC) following the lifting of sanctions against Iran. OPEC pumped 32.44 million bpd in April, up 188,000 bpd from March, the highest since 2008.
In fact, despite the supply disruptions over the past two weeks, there are still plenty of inventories in the market and according to Goldman the $2 a barrel increase is not a huge jump. And with large stockpiles in several countries, the current outages have little impact on the availability of crude barrels.
According to data from the Energy Information Administration, although U.S. stockpiles of crude shrank in the week ended May 6 for the first time in more than a month, there are still plenty of stored supplies in the country.
Goldman predicts that the market will return to a surplus in 2017 and that smaller oil producers will be those that drive up oil output, with the help of major suppliers such as Saudi Arabia, Kuwait, the U.A.E. and Russia.