10:42 | 17/05/2016 Global Economy
Oil prices shot up to six-and-a-half month peaks on Monday as Goldman Sachs said the market faces a short-term supply deficit due to production outages.
File photo of an oil rig - (AFP Photo)
A much-cited report by the US banking giant said supply disruptions in Nigeria and better demand overall had created a surprising supply crunch in the short run.
"With each of these shifts significant in magnitude, the oil market has gone from nearing storage saturation to being in deficit much earlier than we expected," Goldman said.
Besides Nigeria, the oil market is also monitoring production outages in Canada due to wildfires and a political crisis in Venezuela that is expected to stifle output in the oil-exporting South American country.
"Sentiment is certainly bullish," said Citi Futures analyst Tim Evans, adding that he still views the market as "overbought and vulnerable to correction."
US benchmark West Texas Intermediate for June delivery rose US$1.51 to US$47.72 a barrel. Brent North Sea oil for July delivery climbed US$1.14 to US$48.97 a barrel in London.
The Goldman forecast is the latest in a series of reports to point to a tighter market. The International Energy Agency last week predicted the glut would shrink in the second half of 2016, due in part to stronger-than-expected demand from India.
However, Goldman gave a muted outlook beyond the rest of 2016, saying strong output in Iraq and Iran, among other factors, would shift the market back into surplus in the first quarter of 2017, keeping prices at US$45 a barrel./.