Goldman sticks with Brent trading range, citing muted volatility

Investing.com - The Brent crude contract has traded in a pretty tight range of late, and Goldman Sachs expects a $70-$90 a barrel range to continue for the foreseeable future as oil price volatility has fallen to pre-Covid lows, despite the tensions surrounding the Red Sea tanker attacks.

This muted volatility despite the ongoing conflicts in the oil-rich Middle East reflects three main reasons, the influential investment bank said, in a note dated Feb. 25.

Firstly, the geopolitical risk premium remains modest, with only a $2/bbl boost to Brent from Red Sea disruptions and unaffected crude production.

Secondly, the pillars of the OPEC range framework remain in place as elevated spare capacity limits upside price risk, while the OPEC put limits downside risk.

Saudi Arabia’s decision not to increase its capacity and the decline in the elasticity of U.S. supply on shale consolidation suggest that Saudi Arabia has both the will and the means to support prices.

Finally, robust non-OPEC supply growth is likely to nearly keep pace with solid global demand growth.

“We still expect demand to grow 1.5mb/d in 2024, with a downgrade in China on weakness in our nowcast but upgrades in India and the U.S.,” said analysts at Goldman.

“We still expect OPEC+ to extend cuts through 2024Q2, and to only gradually and partially phase out the latest package starting in 2024Q3.”

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