By Adedapo Adesanya
Goldman Sachs has revised and reduced its forecast for Brent crude oil, the benchmark which Nigeria prices its crude to $75 a barrel for the third quarter, $5 lower than its previous estimate, as a surge in Delta variant COVID-19 cases takes a toll on demand.
Earlier this week, oil prices fell $5 a barrel in response to fears over the hit to demand from rising Delta coronavirus infections and an agreement from the Organisation of the Petroleum Exporting Countries and allies (OPEC+) to boost output.
“Our oil balances are slightly tighter in 2H21 than previously, with an assumed two-month 1 mb/d demand hit from Delta more than offset by OPEC+ slower production ramp-up,” Goldman said.
In addition, the bank now projects a third-quarter deficit of 1.5 million barrels per day versus the 1.9 million barrels per day forecast previously.
Goldman expects Brent oil prices to average $80 per barrel in the fourth quarter from its previous forecast of $75 and sees a deficit of 1.7 million barrels per day in the final quarter of this year.
“The oil market repricing to a higher equilibrium is far from over, with the bullish impulse shifting from the demand to the supply side,” the bank said.
Even if vaccinations fail to curb hospitalisation rates, which could drive a longer slump to demand, the decline would be offset by lower OPEC+ and United States shale output given current prices, Goldman added.
“Oil prices may continue to gyrate wildly in the coming weeks, given the uncertainties around Delta variant and the slow velocity of supply developments relative to the recent demand gains,” it said.
Goldman also said progress on a US-Iran nuclear deal has stalled leading to increased risks that the potential ramp-up in Iran exports is later than its October base case.
Modupe Gbadeyanka