Oil prices took a tumble on Tuesday, with the commodity under pressure from a strong US dollar and investors oversupply concerns returning despite OPEC+ agreeing to prolong their record production cuts until the end of July.
Brent crude is trading 28 cents lower at $40.52 a barrel, while the US West Texas Intermediate is down 0.5% to $38 a barrel at the time of publication.
A ‘slightly stronger U.S. dollar… is weighing on crude prices. Also the prospect of higher production from Saudi Arabia, Kuwait, UAE and Oman in July is not helping prices as well,’ UBS analyst Giovanni Staunovo told Reuters.
Goldman Sachs predicts Brent crude will slip to $35
Despite oil prices enjoying a brief rally due to OPEC+ agreeing to prolong its record production cuts, helping to push Brent crude above the psychological $40 mark, oil markets fundamentals remain weak, according to analysts at Goldman Sachs.
‘With OPEC’s latest cut already more than priced in, we now forecast a pull-back in prices in coming weeks with our short-term Brent forecast of $35/bbl vs. spot prices of $43/bbl,’ Damien Courvalin, senior commodity strategist at Goldman Sachs said in a note.
‘Just as strengthening physical oil prices led us to turn constructive on the oil market on 1 May, very poor refining margins and the recent sharp decline in US crude bases now comfort us in our sequentially bearish outlook,’ the US-based investment bank added.
EIA raises 2020 US oil price outlook
The US Energy Information Administration (EIA) raised its 2020 forecast for Brent crude and WTI oil prices and lowered its expectations for US crude oil production, according to its short-term energy outlook report on Tuesday.
‘EIA expects monthly Brent prices will average $37/b during the second half of 2020 and rise to an average of $48/b in 2021,’ the agency said. ‘The forecast of rising crude oil prices reflects expected declines in global oil inventories during the second half of 2020 and through 2021.’
‘EIA expects high inventory levels and spare crude oil production capacity will limit upward price pressures in the coming months, but as inventories decline into 2021, those upward price pressures will increase.’