Goldman Sachs on Monday said the relatively unusual Brent crude pricing pattern that has left prompt values well above those projected one to three years in the future is unlikely to last.
The investment bank's commodities team said crude oil inventories by most measurements reflect a tight global market as destocking has become a major theme this year.
But while inventories measured in days of supply are at some of the lowest levels since crude oil futures debuted, spare capacity for oil is at an all-time high.
Goldman said this combination has distorted futures' structure. While similar situations have occurred in the past, they have been relatively infrequent. The bank cited similar occurrences in 1999-2000, 2002-2003, 2021 to early 2022, and mid-2023 to the present.
And those instances were associated with a market structure in which prompt prices were at a sizable premium to values further out.
Also impacting this structure is the consensus view that there will be a large crude oil surplus at some point next year. The bank projected $76/bbl Brent crude by March, before giving way to considerably lower prices by the end of 2025, particularly if the incoming Trump administration imposes tariffs.
Analysts with Bank of America and Citigroup are also projecting Brent crude prices will slide from what may be a front-end loaded 2025.
Goldman said abundant spare capacity and low inventories are behind Brent's "distorted" pricing structure for Brent.
While expectations for an eventually large surplus in 2025 have suppressed forward prices, those expectations can tighten near term supply and the lower prices could encourage more demand and suppress supply additions.
Goldman said it continues to believe the current pricing structure won't last.
Prompt Brent trading at about $2.30/bbl over December 2025 is at the point where forward numbers are too low, the bank said. The high spare capacity numbers may be depressing the three to 36-month spreads by about $1-$2/bbl, the analysts said.
This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.
--Reporting by Tom Kloza, tkloza@opisnet.com; Editing by Jeff Barber
(END) Dow Jones Newswires
December 17, 2024 12:23 ET (17:23 GMT)
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