Goldman Sachs says demand for oil is growing faster than forecast

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March 15, 2019 11:41am NYSE:USO

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From Tom DiChristopher:

  • Oil demand is growing faster than expected in the first quarter, on pace to jump by nearly 2 million barrels per day in the first quarter, says Goldman Sachs.
  • The strong consumption will likely push Brent crude oil prices above $70 a barrel.
  • The rally threatens to provoke one of President Donald Trump’s tweets calling for OPEC to tamp down prices.

The world’s appetite for oil and gasoline is growing faster than many forecasters expected, putting Brent crude on pace to top $70 a barrel, Goldman Sachs says.

The investment bank says oil demand grew by 1.55 million barrels per day in January alone, a strong result despite a tough comparison with high consumption last year. For the first quarter, Goldman expects global oil demand to grow by nearly 2 million bpd, trouncing its earlier forecast for 1.1 million bpd and driven by consumption in emerging markets.

“We continue to believe that ongoing macro and oil demand concerns are overdone,” Goldman analysts said in a research note on Thursday.

The strong demand will likely push Brent crude, the international benchmark for oil prices, above $70 per barrel. The rally has already outstripped Goldman’s prior view that Brent would peak at $67.50 in the second quarter. Brent hit a 2019 high above $68 on Thursday.

It will also keep growth for the full year on pace for Goldman’s target of 1.45 million bpd, making the bank more bullish than most forecasters.

In China, a key engine for oil demand, oil consumption grew by 340,000 bpd in January and February, according to Goldman. The Chinese also stocked away 360,000 bpd, a buildup that runs counter to seasonal trends, the bank says.

Gasoline demand in particular is surprisingly strong. Over the last three months, Goldman’s subsample of consumers shows gasoline consumption growing by 510,000 bpd, the highest reading since May 2016.

Goldman sees catalysts around the world, including the move away from diesel engines in Europe, a value-added tax cut in South Korea and a drop in gasoline prices relative to biofuel in Brazil.

The bank warns that strong demand does create one key risk to the oil price rally: Rising prices could prompt one of President Donald Trump‘s now infamous OPEC tweets.

“Any further meaningful rally in oil prices will likely lead to further US pressure to ease” output cuts by OPEC and its allies, Goldman said. “So far, however, the ongoing OPEC ‘shock and awe’ strategy has shown no signs of wavering after the latest US presidential oil tweet.”

The United States Oil Fund LP (USO) was trading at $12.19 per share on Friday morning, down $0.03 (-0.25%). Year-to-date, USO has gained 1.50%, versus a 5.64% rise in the benchmark S&P 500 index during the same period.

USO currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 108 ETFs in the Commodity ETFs category.

This article is brought to you courtesy of CNBC.

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