The sun sets behind the chimneys of the Total Grandpuits oil refinery, southeast of Paris, France, March 1, 2021. REUTERS/Christian Hartmann/File Photo
U.S. investment bank Goldman Sachs said the OPEC+ deal to boost oil supply supports its view on oil prices and expects modest "upside" to its summer forecast for Brent to reach $80 a barrel.
OPEC+, comprising the Organization of the Petroleum Exporting Countries, Russia and other producers, agreed on Sunday to boost oil supply from August to cool prices which have climbed to 2-1/2 year highs.
"The agreement had two distinct points of focus: a moderate increase in production which will keep the market in deficit in the coming months, as well as guidance for higher capacity which will be needed in coming years given growing under-investment," Goldman Sachs said in a note.
Goldman said the deal is in line with its view that "OPEC should focus on maintaining a tight physical market all the while guiding for higher future capacity and disincentivizing competing investments."
The OPEC+ deal represents $2 per barrel "upside" to its $80 per barrel summer Brent price forecast and a $5 upside to its $75 per barrel forecast for next year, Goldman said.
However, Goldman expects oil prices to gyrate in the coming weeks due to the risks from the Delta variant and the slower velocity of supply developments relative to recent mobility gains.
With most of its expected summer demand gains already achieved and with growing headwinds from the Delta COVID-19 variant, Goldman said the catalyst for the next leg higher in prices is shifting from the demand to the supply side, with upside risks to price forecasts in the coming months.
Oil prices fell more than $1 a barrel on Monday, after the OPEC+ group of producers overcame internal divisions and agreed to boost output, sparking concerns over a supply glut amid a surge in COVID-19 cases.
Reporting by Arundhati Sarkar and Brijesh Patel in Bengaluru; editing by Richard Pullin
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