Analysts at Goldman Sachs (NYSE:GS) say they no longer expect OPEC+ to partially backtrack on the recent voluntary production cuts in June.
Instead, the Wall Street giant now expects Saudi Arabia's crude oil supply to hold steady at 9 million barrels per day in July, up from its previous estimate of 9.2 million barrels per day.
Goldman analysts cite three main reasons for the change in their expectations.
First, recent stockpile data have exceeded expectations, leading the model to estimate only a 37% probability of increased production in June.
Second, recent production cut compliance data indicate that extending Saudi Arabia's reduction of 1 million barrels per day, as part of the overall reduction of 2.2 million barrels per day, would improve the country's oil profits in the short term.
Finally, high interest rates have increased the importance of these short-term profits to finance Saudi Arabia's ambitious investment plans, analysts note.
"However, high spare capacity implies that the announcement of a modest increase in planned production remains plausible", they write.
"Following the UAE's recent announcement of a capacity increase, we have raised our estimate of global spare capacity by May 2024 from 6.2 to 6.5 million barrels per day", the analysts add.
Goldman Sachs sees the mechanical effect of the OPEC+ production cut as positive for spot oil prices compared to long-term prices. However, they continue to expect Brent crude to average $82 per barrel by 2025, stating that OPEC's decision represents a response to falling reserve levels and that high spare capacity will constrain oil prices in the long term.
The firm's analysts also argue that Brent crude is likely to remain within a range of $75-90 under most scenarios.
"We see geopolitical impediments to OPEC's ability to deploy spare capacity as the main upside tail risk to oil prices, while the potentially negative effects of high spare capacity on OPEC cohesion pose some downside risks", they say.