Oil Production Faces ‘Serious Problem’ in 2024, With Implication for Prices, Says Goldman Sachs

A 3D-printed oil pump jack is seen in front of the OPEC logo in this illustration picture, on April 14, 2020. (Dado Ruvic/Reuters)

Goldman Sachs Group predicts that oil will rise above $100 a barrel this year and that there could be a serious supply problem into 2024, as spare production capacity runs dry.

The sanctions against Russian oil exports and rising demand from China, as it ends its zero-COVID lockdown policy, is expected to raise prices above its current level of around $80 by the end of the year. Goldman’s chief commodity strategist Jeff Currie told Bloomberg News.

Oil prices have been volatile since the pandemic hit, falling below $20 in 2020, before soaring close to $130 per barrel after Russia invaded Ukraine in February 2022, which disrupted supplies and fell short of global demand.

The war caused the cost of gasoline, diesel, and jet fuel to skyrocket, as refineries maxed out capacity, before falling again in the year, as countries found alternative sources.

Last December, Goldman gave a bearish forecast on most asset classes, except for commodities, which were predicted to rise by 43 percent, as “supply shortages bite.”

Commodities have gone up and down since then, and they experienced a modest rise following China’s reopening.

The sector has since slumped, with oil trading just above the Biden administration’s refill floor of $72 per barrel to restock the Strategic Oil Reserve, despite economists’ predictions that China’s demand for crude will hit record highs in 2023.

A Lack of Investment in Oil Sector to Blame for Pending Price Spikes

Currie told Bloomberg at a conference in the Saudi Arabian capital of Riyadh on Feb. 5 that a lack of much-needed investment in production to meet rising oil demand has become a key factor in raising up prices.

He said that this lack of capacity will become a major issue next year as oil prices skyrocket.

“The commodity supercycle is a sequence of price spikes with each high higher and each low higher,” said Currie.

The Goldman analyst predicts that oil markets will hit a deficit of supply compared to demand by May, which would use up much of the remaining capacity and stockpiles of the world’s major producers, and raise prices again above $100 a barrel by 2024 due to the situations with Russia and China.

Saudi Oil Minister Defends OPEC’s Actions

Meanwhile, Saudi Arabia energy minister Prince Abdulaziz bin Salman blamed a lack of investment in refining capacity for the pending supply crisis while speaking at the Riyadh conference on Feb 4.

He reiterated OPEC’s cautious stance in deciding when to ramp up output after its leadership committee recommended no output changes last week.

“I will believe it when I see it, and then take action,” said the prince.

“If people had trusted us then, we wouldn’t have undergone the trepidations that happened,” said bin Salman, who was referring the brief spike in prices last fall when OPEC+ cut production by two million barrels a day.

Saudi Arabia and Russia are the de facto leaders of OPEC+, a 23-nation cartel of the world’s key oil producers.

The bloc is attempting to balance supply and demand while keeping prices high enough to satisfy its members.

The prince claimed that OPEC+’s move to limit supplies had saved oil markets during the plunge in demand during the pandemic.

Goldman Analyst Believes OPEC Will Raise Its Production Limits Later This Year

Currie maintained Goldman’s view that OPEC+ would eventually unwind production limits and will likely raise its output later this year, but the oil cartel’s market-monitoring committee recently recommended that it will maintain current oil output levels for now.

“Right now, we’re still balanced to a surplus because China has still yet to fully rebound,” Currie told Bloomberg. repeating his prediction that capacity will be stretched when demand outstrips supply by the end of this year.

“Are we going to run out of spare production capacity? Potentially by 2024 you start to have a serious problem,” asked Currie.