OPEC supply cuts extension may not be warranted: Goldman Sachs

OPEC supply cuts
Analysts at Goldman Sachs say the oil market is rebalancing, despite record high US crude inventories. Reuters file photo by Brendan McDermid.

OPEC supply cuts not necessary unless supply and demand fundamentals deteriorate

Goldman Sachs said an extension of the OPEC supply cuts agreement is not warranted unless there is a deterioration of supply and demand fundamentals.

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In a note released on Sunday, analysts part of the Global Investment Research Commodities team at Goldman Sachs said OPEC and other pact participants should be wary of extending cuts.

“Our assessment of oil fundamentals and the rationale behind the production cuts do not warrant, in our view, such an extension barring either a sharp deceleration of demand growth or a sharp rebound in Libya/Nigeria production,” the bank said in Sunday’s note.

“We believe that the rebalancing of the oil market is in fact making progress despite the record high U.S. crude inventories.”

Meeting in Kuwait on Sunday, OPEC and non-OPEC producers agreed to review the agreement and determine if the OPEC supply cuts should be extended at its next meeting in April.

The bank said that “Oil prices above $60 per barrel would prove self defeating in our view given the flattening of the oil cost curve and the unprecedented velocity of the shale supply response.”

On Monday, oil prices dipped as US drilling activity increased and uncertainty over the extension of the OPEC cut prevailed.