Oil undervalued amid supply concerns – analysts

Oil prices are low due to a market deficit, with concerns about potential sanctions on Iran’s oil supply under US President-elect Donald Trump, said according to the heads of commodities research at Goldman Sachs and Morgan Stanley.

“We think that oil prices are about $5 per barrel undervalued relative to the fair value based on the level of inventories,” Daan Struyven, co-head of global commodities research at GS told reporters on Wednesday.

Oil prices are currently undervalued, according to leading commodity analysts at Goldman Sachs and Morgan Stanley. They attribute this undervaluation to a market deficit and potential supply disruptions, particularly from Iran.

The oil market is facing a deficit of approximately 500,000 barrels per day, Struyven mentioned. China and the US are expected to keep replenishing strategic reserves for energy security.

He added that factors such as reduced output from OPEC+ countries and the possibility of stricter sanctions on Iran, potentially cutting supply by one million barrels per day, may lead to a short-term increase in oil prices.

Goldman Sachs forecasts Brent crude to peak at around $78 per barrel by June 2024, before declining to $71 per barrel by 2026. However, the bank acknowledges that significant spare capacity exists to address potential supply shortages.

Currently, Brent crude futures are trading below $73 per barrel, impacted by recent developments such as the Israel-Hezbollah ceasefire and OPEC+’s discussions on delaying production cut unwinding.

Attribution: Reuters

Subediting: M. S. Salama