The global race to rebuild depleted oil inventories will not be enough to offset a massive glut that’s coming to the market next year, as traffic through the Strait of Hormuz appears to be headed toward normalization, according to Goldman Sachs commodity strategists.
First, arguing the bullish side, stockpiles of crude and refined petroleum products in many parts of the world have been depleted to multi-decade lows after governments raced to release strategic stockpiles in March after the Middle East crisis trapped millions of barrels of daily crude and product flows in the Persian Gulf. These inventories will now have to be rebuilt - a process that’s likely to put a floor under oil prices, Oilprice reports..
In the United States alone, the U.S. Strategic Petroleum Reserve (SPR) has been depleted to a 1983 low, while stocks at Cushing, the delivery point of WTI, have crumbled to operational-stress levels.
In addition, many countries, especially in Asia Pacific, are looking to build new reserve capacity to boost their energy security and never again be caught off-guard by a massive supply disruption like the one triggered by the closure of the most important oil and LNG chokepoint.
But Goldman Sachs takes the bearish side, and says that all these demand-supportive factors cannot erase the major glut coming next year.
The investment bank expects the global oil surplus to be about 3 million barrels per day (bpd) next year, Samantha Dart, co-head of global commodities research at Goldman, told Bloomberg Television in an interview on Wednesday.
“We do expect a little over 1 million barrels a day just of SPR rebuilding globally, but still, that would leave us close to 2 million barrels a day of a surplus,” Dart added.
Other Wall Street banks have also started to predict a glut next year after the U.S. and Iran signed a memorandum of understanding in mid-June to negotiate a peace deal.
Morgan Stanley, for example, has slashed its oil price forecasts for the next 18 months as it expects the reopening of the Strait of Hormuz to accelerate a new supply glut.
More in Dart's latest note available to pro subscribers.