Goldman Sachs on Thursday raised its 2018 oil price forecasts, projecting that Brent crude will soon top $80, fueled by blockbuster oil demand, a deal among big producers to limit output and U.S. drillers' inability to meet the world's growing energy appetite.
The investment bank now sees Brent, the international benchmark for oil, averaging $75 a barrel over the next three months, up from its previous target of $62. Goldman also raised its six- and 12-month forecasts to $82.50 and $75, respectively.
Goldman's call puts it ahead of its Wall Street peers. J.P. Morgan last week forecast Brent would average $70 in 2018 and rise toward $78 in the first half of the year. Bank of America Merrill Lynch recently raised its target to $64.
Brent crude futures hit a three-year high at $71.28 last week.
To be sure, Goldman sees Brent heading back to $60 a barrel in 2020 as the "New Oil Order" reasserts itself. The pillars of that new order are growing production from U.S. shale oil fields and OPEC's eventual exit from a deal with Russia and other big producers to keep 1.8 million barrels a day off the market through 2018.
"Importantly, all the pillars of the New Oil Order remain intact in our view so this is a cyclical call," Goldman analysts, including global head of commodities Jeff Currie, said in a note.
"The New Oil Order is on hiatus with its next point of reckoning likely a few years away."
Goldman says it believes the rebalancing of the oversupplied oil market has actually already occurred, six months earlier than it expected.
The bank credits "stellar" growth in oil demand, OPEC members sticking to the output deal and the downward spiral of crude output in Venezuela, which is mired in economic crisis.
Many of these drivers will continue into 2018, and the world's growing appetite for oil now looks even more ravenous than anticipated, Goldman says.
Goldman recently raised its 2018 forecast for oil demand growth to 1.86 million barrels a day from 1.73 million barrels a day. On Thursday, it introduced its 2019 demand forecast at 1.6 million barrels a day but said economic growth around the world means consumption could be even stronger.
Meanwhile, Goldman thinks OPEC is likely to keep its output limits in place, even as crude stockpiles return to the five-year average, which is the goal of its output deal. At the same time, U.S. shale drillers won't be able to meet all the growing demand, the bank says.
It notes that many U.S. drillers and oil majors have vowed to focus on efficiency and fiscal discipline at the expense of runaway production growth.
The bank also warns that a bottleneck is forming in the oil services sector, particularly for the crews and equipment that perform hydraulic fracturing. The process of injecting water, sand and chemicals into wells to free oil and gas from shale rock formations has fueled a boom in U.S. output and helped the nation top Saudi Arabia as the world's second-biggest crude producer, after Russia.
Goldman's forecast also takes into account backwardation in oil markets, which means oil prices for future deliveries of crude are cheaper than prices for earlier delivery. That structure creates trading opportunities that tend to draw buyers into the market.