Short-term Shock: Goldman Sachs Forecasts an Oil Price Spike

While the 2019 fuel forecast calls for temperate prices at the pump, Goldman Sachs claims we could be in for a brief surge this spring.

Global oil production is expected to take a sizable hit next month. Saudi Arabia, along with the rest of OPEC, has been limiting production to prop up prices. Meanwhile, Venezuela is having trouble across the board. The nation’s ongoing political crisis has resulted in a steady decline in oil production since 2013, and U.S. sanctions effectively made doing business with Venezuela’s state-owned oil company, PDVSA, an impossibility overnight.

Considering the United States could undermine OPEC members by simply increasing shale drilling, another energy crisis is out of the question. However, that takes time, leaving a window where oil prices could shoot up by as much as 13 percent. Fortunately, Bloomberg reports that the window should be relatively small.

“The oil market will likely continue to tighten significantly this March and April,” Goldman Sachs analyst Jeffrey Currie explained. “While prices could easily trade in a $70-$75 a barrel trading range, we believe such an environment would likely prove fleeting.”

Currently, Brent Crude is sitting at about $65.85 per barrel, while U.S.-sourced oil is around $56.30 a drum.

From Bloomberg:

Saudi Arabia is guiding to March production around 500,000 barrels a day lower than its own quota, Currie said in the Feb. 25 note. At least 100,000 barrels a day of Venezuelan exports have been lost, and this could rise to a daily 200,000 to 300,000 barrels in coming months if there’s no political resolution, he said.

On the demand side, a surge in Chinese credit in January has eased fears of a slowdown in Asia’s biggest economy, the Federal Reserve is tilting dovish and consumption data from India, France and Italy points to stronger growth, Goldman said.

You’ll likely notice a modest bump at the pump and plenty of heated rhetoric emanating from politicians. Donald Trump took to Twitter earlier today to express his annoyance with the Organization of Petroleum Exporting Countries. “Oil prices getting too high,” the president said. “OPEC, please relax and take it easy. World cannot take a price hike — fragile!”

The world may not take it easy, but the United States should be able to weather this storm without too much trouble. Last week, the Energy Information Administration reported a 3.67 million barrel increase in U.S. oil supplies — far more than analysts expected. Earlier in the month, it also noted that U.S. shale output should rise by around 84,000 barrels a day through March of 2019, resulting in a record 8.4 million barrels per day. And all of this is happening as companies plan major investments in Texas and New Mexico to further raise crude production later this year.

That still means a lean supply for spring, but American motorists should come out on the other side relatively unscathed.

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