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News Article

Goldman Sachs Says Oil Prices Will Return to Normal in 2022

By Peter Appleby | Mon, 07/06/2020 - 17:19

Investment firm Goldman Sachs has published some welcoming news for industry players. According to a research note published at the end of last week, the firm expects oil demand will “fully recover” by 2022, reports CNBC.

Though the expected deadline is still two years away, this notice will help diminish some fears for oil companies that have been experiencing a horrid time during the pandemic. Oil prices fell into negative territory in April for the first time in history and CAPEX cuts and job losses followed. Some analysts have suggested that COVID-19 has brought the point of peak oil forward and that prices are unlikely to ever reach pre-pandemic levels again.

However, Goldman Sachs believes that demand for crude will fall 8 percent in 2020 before recouping 6 percent in 2021. By 2022, prices will return to normal.

This recovery will be spurred by the return to “normality” as economies recover. Demand will grow as industrial production hits a rhythm and people choose to commute to work in their cars rather than public transport as the fear of catching COVID-19 lingers. However, the bank predicts air travel will remain at depressed figures for longer and that jet fuel’s full recovery will only be achieved by 2023.

Goldman Sach’s 2020 forecast is in tune with that of the International Energy Agency (IEA), which in its June 2020 report said that “oil demand in 2020 is expected to fall by 8.1MMb/d, the largest in history, before recovering by 5.7MMb/d in 2021.” Like the investment bank, the IEA sees “reduced jet and kerosene deliveries” until at least 2022.

Supporting Goldman’s predictions, IEA raised its 2020 demand forecast by 500Mb/d in its June report to 91.7MMb/d average over its previous May report “due to stronger than expected deliveries during COVID-19 lockdown.” This was driven by China’s faster-than-expected recovery and the sharp rise from India, the report states.

At the end of March, the Mexican crude oil basket price stood at US$10.76. By the end of June, after recovering from April’s negative numbers, the basket had reached US$34.28 per barrel. Though this is still some way off the US$58.88 per barrel price on January 3, the return to US$34.28 is an increase of 218.5 percent.

Goldman Sach’s is not the only firm seeing major price increases in the coming years. Recently, JP Morgan Head of Europe, Middle East and Africa Christyan Malek said that due an industry “supercycle,” combined with the demand shortfall that is being created as OPEC+ paired back its production, prices will climb to US$190 in 2025.

Peter Appleby Peter Appleby Journalist and Industry Analyst