Spare oil production capacity is at historically high levels, which is putting downward pressure on Brent crude prices, according to Goldman Sachs. The investment bank noted that time spreads—prices for oil delivery at future dates—have appeared undervalued since the summer.
Goldman Sachs also pointed to expectations of a large surplus next year as a factor likely affecting deferred time spreads.
“Despite this, we don’t believe that the current low inventory levels or our expected surplus of 0.37 million barrels per day (mb/d) in 2025 justify the oversupply priced into the futures market,” the analysts at Goldman Sachs wrote in a recent report.
They added that deferred time spreads remain low and vulnerable to potential downside risks from factors such as higher OPEC+ production and tariffs.
Earlier this month, OPEC+ decided to delay the start of easing its 2.2 million barrels per day (bpd) production cuts until April 2025, pushing back the timeline from the previously scheduled start of January 2025. The group also extended its commitment to unwind these cuts until September 2026.
Ahead of the OPEC+ meeting, Goldman Sachs predicted that Brent crude oil prices would average $76 per barrel next year, lower than its previous forecast of $80 per barrel in 2024. This is mainly due to expectations of a market surplus.
“Our base case is that Brent will remain within a $70-85 range, as high spare capacity limits price increases, while OPEC and shale oil supply help prevent significant price declines,” the bank’s analysts explained.
While OPEC+ revised its outlook in early December, leading analysts to lower their surplus forecasts, most still expect an oversupply next year. This is due to rising non-OPEC+ production and modest global demand growth.
Growth in non-OPEC+ oil supply, driven by countries like the U.S., Brazil, Guyana, Canada, and Argentina, is expected to weigh on oil prices if global demand growth remains sluggish.
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