NEW YORK (AA) – Goldman Sachs on Monday revised up its crude oil price projections, citing a shift in global supply and overall demand.
"The physical rebalancing of the oil market has finally started. We believe the market has likely shifted into [supply] deficit in May ... driven by both sustained strong demand as well as sharply declining production," the global investment banking firm said in its Commodities Research report.
With an oversupply and low global demand, crude prices fell from $115 per barrel in June 2014 to below $30 a barrel in January -- their lowest levels in almost 13 years.
But with a wildfire in Canada, pipeline attacks in Nigeria, weak economic conditions hampering oil investments in Venezuela and falling U.S. crude oil inventories and production, the supply glut in the global market is decreasing, pushing oil prices Monday to their highest level of the year.
"The oil market has gone from nearing storage saturation to being in deficit much earlier than we expected and we are pulling forward our price forecast," Goldman said.
The investment firm now expects American benchmark West Texas Intermediate (WTI) to average $45 a barrel in the second quarter -- revised up from $35 per barrel in March. Goldman projects WTI to average $50 per barrel in the second half of 2016, from its previous forecast of $45 a barrel in March.
The report was met with bullish sentiments in the market as international benchmark Brent crude neared $50, while WTI climbed to almost $48 per barrel -- their highest levels since November.
Possibilities exist once again next year for a crude surplus in global markets as low-cost production such as U.S. shale would return to the market with greater output due to current higher prices, Goldman warned.
"This leads us to lower our 2017 forecast with prices in 1Q17 at $45 per barrel and only reaching $60 per barrel by 4Q17," the bank said.