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Goldman Sachs hikes oil price outlook, expects high compliance for oil output cuts

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Argus: OPEC members to comply, for now

Investment bank Goldman Sachs Friday revised its crude oil price forecast for the second quarter of 2017 on the back of a decision by OPEC members and other countries to cut production amid growing demand from consumers.

Goldman Sachs has upped its oil price outlook for the second quarter of 2017 to $57.50 a barrel from $55 a barrel for U.S. West Texas Intermediate crude. It also raised its price forecast for international benchmark Brent crude to $59 a barrel from $56.50 a barrel.

The investment bank's December outlook for U.S. crude however remains at $50 a barrel as a potential ramp up in oil production from Libya and a stronger dollar limit the near-term upside.

As for the much hyped production cuts by OPEC and major non-OPEC producers, there will be "little evidence" of the cuts until mid to late January, when they will be the "next catalyst for the next large move in prices".

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.
Nick Oxford | Reuters

"Ultimately,our work on Saudi Arabia's fiscal balance suggests that the kingdom has a strong incentive to cut production to achieve a normalization of inventories,even if it requires a larger unilateral cut, consistent with comments last weekend by the energy minister. Given this incentive to cut and in light of the OPEC and non-OPEC cuts announced over the past two weeks, we are slightly raising the 1H17 production declines that we project from the participating producers, " the Goldman analysts wrote.

They expect 84 percent compliance to the announced collective cuts of 1.6 million barrels a day.

"Beyond H1 2017, we expect that the global market will remain balanced, with Brent prices between $55 per barrel and $60 per barrel, on higher production from low-cost producers, a greater shale supply response and the continued ramp up in legacy projects," analysts from the house added.

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