Goldman Sachs Analysis of Petroleum Futures

Goldman Sachs recently released a note to clients providing an analysis of petroleum futures. The report highlighted the increase in managed money length across various contracts, including Brent, West Texas Intermediate, ULSD, RBOB, and gasoil. This surge resulted in the total reaching a four-month high of 530 million barrels.

One factor contributing to this rise in long positions is the decline in oil flows through the Bab-El-Mandeb Strait near the Red Sea. Goldman Sachs calculated that disruptions in the area since the fall have caused a drop of about 3 million barrels per day. As a result, there has been additional buying in response to this diminished supply.

However, despite this positive trend, Chinese demand has been disappointing. Goldman Sachs estimated that current Chinese demand stands at 15.8 million barrels per day, which is 1 million barrels less than their February forecast for the country.

Another factor affecting the bullish case for energy is the unseasonably warm weather experienced in many parts of the northern hemisphere. The analysts from Goldman Sachs suggested that these higher temperatures have reduced global demand by approximately 200,000 barrels per day, with the majority of this decline occurring in North America.

Despite these challenges, Goldman Sachs’ analysts have not made any changes to their price predictions for crude. Additionally, all of their trade recommendations are currently showing solid profits.

One notable suggestion from the bank is to initiate a long position in December 2024 Brent at $71.25 per barrel. At midday Tuesday, this contract was valued at $75.64 per barrel, resulting in a paper gain of $4.39 per barrel.

Furthermore, the report predicts tight gasoline supplies in the North Atlantic this summer. In light of this, Goldman Sachs recommends that clients consider buying EBOB versus Brent at second- and third-quarter cracks of $11.44 per barrel. It is worth noting that this crack has recently expanded to over $16.65 per barrel.

Overall, Goldman Sachs’ analysis provides valuable insights into the current state of petroleum futures, highlighting both positive and negative factors influencing the market.

Mixed Numbers from OPEC Sources

The latest numbers from OPEC sources present a mixed picture. According to the bank, Russian liquids supply has recently decreased to approximately 10.7 million b/d, aligning with their projections for the first half of the year.

Questionable Compliance with OPEC+ Production Quotas

In addition, the report references Kpler trade data that raises doubts about the level of compliance with OPEC+ production quotas. The analysts highlight a Bloomberg survey indicating that OPEC production only dropped by 490,000 b/d in January, with a significant portion of this reduction coming from Iraq and Kuwait.

Global Inventory Data Analysis

Goldman Sachs characterizes the global inventory data as “slightly bullish.” While OECD stocks show a decline, total global oil commercial visible stocks have increased by 13 million bbl. This growth can be attributed, in part, to longer freight journeys that have resulted in more oil being transported by sea.

Upbeat Outlook for Jet Fuel

The bank also provides an optimistic outlook for jet fuel. Despite China’s performance remaining flat, the report predicts a rebound in demand during February after January’s consumption fell approximately 600,000 b/d below the 2019 level.

Oil Holdings and Global Commercial Visible Stocks

According to the report, OECD oil holdings currently stand at 2.755 billion bbl, which is 41 million bbl lower than the end-of-January forecast of 2.796 billion bbl. Moreover, total global commercial visible stocks have decreased by 20 million bbl over the past 90 days, reaching just above 4.7 billion bbl.

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