Investment bank Goldman Sachs has said upcoming crude oil production cuts by OPEC could result in a significantly larger deficit in the market, according to Reuters.

On Sunday OPEC+, which groups OPEC with Russia and other allies, agreed to widen oil supply cuts to 3.66 million barrels per day (bpd). This in turn raised prices to over $86 per barrel.

Goldman Sachs told Reuters that it sees “elevated OPEC pricing power – the ability to raise prices without significantly hurting its demand – as the key economic driver.” The bank estimates that the production cut will raise OPEC+ revenues as the boost to prices more than offsets the drop in volumes.

A market deficit caused by cuts could drive a surge in prices to $100 per barrel by April 2024, as well as raise OPEC’s pricing power.

The bank also said that it expects an almost 90% implementation rate for the 1.16 million bpd production cut plan, suggesting that countries who announced additional cuts have a strong compliance track record.

Goldman Sachs also reiterated its company view that the market will return to sustained deficits from June onwards due to rapid emerging market growth, a fall in Russian oil supply, and slow US supplies.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

Goldman Sachs’ head of commodities research Jeff Currie said in an interview with CNBC: “OPEC’s pricing power is higher than it has ever been. They are going to continue to exercise that power.” He explained that this is a result of “underinvestment in non-OPEC as well as the shale patch.”

“This is a revenue maximising decision for OPEC under all the different scenarios,” he added.

At 14:30 GMT on Tuesday, Brent Crude futures were trading at approximately $85per barrel. Goldman Sachs on Monday raised its price forecast for Brent for December 2023 by $5, from $90 to $95 per barrel.