Goldman sees Brent at $35 as Investors Worry about Gulf Oversupply

Crude oil futures fell Tuesday amid worries about compliance with a newly-extended OPEC+ pact to cut production by nearly 10 million barrels, as Goldman Sachs analysts put out a note forecasting a pullback in Brent to $35 in coming weeks.
The Organization of the Petroleum Exporting Countries and its allies, a group collectively known as OPEC+, reached an agreement over the weekend to extend a global production cut of 9.7 million barrels per day by one month, through July.
Saudi Arabia, Kuwait and the United Arab Emirates, however, are not intending to extend cuts of 1.18 million barrels per day they are currently making on top of that OPEC+ target, Reuters reported.
OPEC members have not yet fully complied with their current output cut pledge. A Reuters survey pegged the member compliance rate at 74% in May.
On top of that concerns persist that other non-OPEC members will drive production higher, including North American shale-oil producers.
West Texas Intermediate crude for July delivery, the U.S. benchmark, lost 25 cents, or 0.7%, to reach $37.94 a barrel on the New York Mercantile Exchange, after falling 3.4% on Monday.
Global benchmark Brent oil for August delivery gave up 36 cents, or 0.9%, at $40.44 a barrel on ICE Futures Europe, following a 3.6% decline a day ago on ICE Futures Europe.
Meanwhile, analysts at Goldman Sachs make the case that the global oil market still faces the challenge of absorbing excess supplies in order for prices to achieve a sustainable phase of normalization from the lows seen as a result of the coronavirus pandemic.
“The oil market only moved into deficit late May and still faces the daunting challenge of normalizing a billion barrels of excess inventories,” wrote Goldman’s researchers including Damien Courvalin, Callum Bruce, and Jeff Currie.
“With OPEC’s latest cut already more than priced in, we now forecast a pull-back in prices in coming weeks with our short-term Brent forecast of $35/bbl vs. spot prices of $43/bbl,” the analysts wrote.
Other bearish signals which pressured prices for a second straight session include the end of voluntary reductions by Gulf producers at the end of June, and potential for a U.S. output increase.A pullback in oil prices would be bearish for Nigerian equities which have tracked oil higher in recent months.