U.S. bank Goldman Sachs, one of the most bearish forecasters on oil over the past year, on Monday raised its short-term price outlook as it said the market had flipped into a deficit due to production outages in Nigeria and Canada.
Goldman, one of the most active banks in commodities, had been predicting as recently as a few months ago that oil prices could fall below $20 a barrel due to global oversupply.
On Monday, it said it now saw U.S. crude trading as high as $50 per barrel in the second half of 2016, although it cautioned that price rises would be modest in 2017 as the market would return to surplus.
"The oil market has gone from nearing storage saturation to being in deficit much earlier than we expected," Goldman said.
"The market likely shifted into deficit in May ... driven by both sustained strong demand as well as sharply declining production," it said, adding that it expected production declines to keep the market in deficit in the second half of 2016.
Supply disruptions around the world of as much as 3.75 million barrels per day (bpd) have wiped out a glut that pulled oil prices down by as much as 70 percent between mid-2014 and early 2016.
Goldman is one of the most active banks in providing hedging services to consumers and producers and its views are also followed by a large number of hedge funds.
However, while Goldman was still predicting potential further declines in oil prices, speculators were raising their bullish bets on both U.S. crude and Brent throughout February, March and April.
As a result, oil prices rallied nearly 80 percent from multi-year lows below $30 in January.
Oil prices jumped by more than 2 percent on Monday on Nigerian supply outages and after Goldman revised its price forecast. [O/R]
Goldman also raised its global demand growth forecast by 200,000 barrels per day to 1.4 million bpd anticipating higher demand from Asia, especially China.
The bank, however, lowered its U.S. crude price outlook for 2017 to $52.50 from $57.50 per barrel as it said markets would return to surplus by the first quarter of 2017.
"We expect that the return of some of the production outages as well as higher Iran and Iraq production will more than offset lingering issues in Nigeria and our higher demand forecast," it said, adding that by the fourth quarter of 2017 prices could reach $60.