As of now, it appears that Saudi Arabia and Russia are in discussions about how much oil to add back onto the market, with the upper bound rumoured to be between 800,000 bpd and 1 million barrels per day (mb/d), or a more modest 300,000 bpd at the lower end. Late last week, WTI and Brent plunged on the news that the group could alter production levels in a few weeks.
“While today’s announcement lifts some of the uncertainty on whether and when Opec and Russia would increase production, we do not view this as a material change to our bullish oil outlook,” Goldman Sachs wrote in a research note last Friday. The investment bank argued that an increase in supply could be forthcoming because the oil market is already tight, and extra supply is needed.
There are several reasons why oil prices might not be heading for another downturn, the investment bank argues. Inventories are already back to the five year average. Demand is strong and is likely underestimated. Venezuela is quickly losing output and there are other potential outages looming. Meanwhile, infrastructure bottlenecks in the Permian could mean that US shale disappoints. In fact, without Opec and Russia increasing supply from current levels, inventories would fall “to historically low levels by 1Q19,” Goldman said.