Oil prices have rebounded from their recent lows and Jeffrey Currie, Goldman Sachs’ head of commodities research, says the worst is now over.
“This market appears to have already turned the corner. We are in the inflection right now as we speak,” he said Thursday on CNBC’s “Worldwide Exchange.” “We do think the market globally will be in a deficit by early June.”
Currie said prices recovered faster than many were forecasting due to lower-than-expected supply coupled with better-than-expected demand.
Data from the U.S. Energy Information Administration on Wednesday showed that U.S. production is now 1.5 million barrels per day below its March all-time high level of 13.1 million bpd.
Beginning May 1, OPEC and its oil-producing allies took 9.7 million bpd offline, and on Monday Saudi Arabia, the group’s de facto leader, said it would scale back production further in an effort to prop up prices. The EIA’s data also showed that gasoline demand is beginning to recover as states start to ease shelter-in-place restrictions.
In April, West Texas Intermediate plunged below zero and into negative territory for the first time on record, but prices have since recovered and on Thursday the contract for June delivery traded around $26. Brent crude, the international benchmark, traded around $30. Goldman forecasts WTI averaging $27 in the third quarter, and $34.50 in the fourth quarter.
By the end of 2021, Currie sees WTI trading at $60, and Brent at $65, but he did note that some caution is warranted. In order for the market to rebalance there needs to be a continued drawdown in inventories, and the production that has already come offline needs to stay offline for at least another quarter.
“Emerging out of lockdown we got an immediate pop. … What does the trajectory look like? Not as fast as China,” he added.
Despite WTI’s rebound, prices are still about 60% below the January high level of $65.65, which has pressured producers as companies struggle to break even. Once demand catches up and producers look to add supply again, Currie said access to capital markets will likely be limited.
“Investors have had enough of this sector. They already had enough going into this, and if they hadn’t had enough before they’re unlikely to be interested this time around. What that tells you, when they need to grow production they’re going to have to grow it out of cash flow, which means you’re going to need to see much higher prices.”