Oil prices had their strongest session in over two months Tuesday, with West Texas Intermediate (WTI) light crude climbing 2% to $80 a barrel, and Brent crude rising 1.7% to $84 a barrel.
The surge in prices is attributed to the anticipation of increased demand with the start of the driving season and ongoing supply constraints. The market expects that OPEC+ will maintain its voluntary output cuts of 2.2 million barrels per day into the second half of the year during its upcoming June 2 meeting.
The United States Oil Fund (NYSE:USO), which tracks the WTI price, rose 3%, factoring in Monday’s oil performance while U.S. markets were closed for Memorial Day.
Energy stocks also rallied, with the Energy Select Sector SPDR Fund (NYSE:XLE) up 1%, outperforming all other S&P 500 sectors.
Chart: WTI Rebounds To $80, Breaking April-May Downtrend
Goldman Sachs Raises Long-Term Oil Demand Outlook
Goldman Sachs has revised its long-term global crude demand forecast upward, projecting continued growth until 2034, after which it expects oil consumption to plateau.
“Peak oil demand is still a decade away,” Goldman analysts said in a report. Goldman Sachs now forecasts global oil demand to reach 108.5 million barrels per day (mb/d) by 2030, up from a previous estimate of 106 mb/d. The firm predicts peak demand around 2034 at approximately 110 mb/d, followed by a flat trend to 2040.
“Our view is more bullish than the IEA, which assessed that oil demand peaks before 2030,” Goldman Sachs said.
The investment bank foresees a potential scenario where oil demand could even rise to about 113 mb/d by 2040, driven by a slower transition to electric vehicles.
“The EV market is facing a few headwinds,” analysts said.
“EV subsidies are being cut in several European markets, and continued price competition has led to profit pressure for OEMs and a slower pace of new EV investments. Our Auto team thinks our EV slow-adoption scenario, which predicts a pause this year in EV sales penetration increase, has become more realistic.”
Goldman Sachs said capital expenditure on crude oil production is slowing, contributing to medium-term supply constraints across the oil value chain.
Goldman Sachs named 23 Buy- and Sell-rated stocks across the energy sector to reflect its long-term views on the oil market.
Goldman Sachs’ Energy-Stock Strategies
Upstream/Integrated Exposure
Theme 1: Own FCF Leaders
Goldman Sachs highlights Buy-rated Shell plc (NYSE:CNQ) as free cash flow leaders.
Sell-rated ONGC has weaker FCF due to limited production growth.
Theme 2: Own Growth Assets
The firm points to Buy-rated ENI S.p.A. (NYSE:DVN) as companies with significant growth assets, citing successful exploration and shale oil access as key opportunities.
Theme 3: Own Profitable Projects
Goldman Sachs identifies Buy-rated PTTEP, Santos Ltd. (OTCPK: SSLZY), and Chevron Corp. (NYSE:CVX) as leaders based on the profitability of their projects.
Refining Exposure
Theme 1: Own Exposure to Refining Market Tightness
The investment bank recommends Buy-rated Thai Oil Public Co. (OTCPK: TOIPF), S-Oil, Reliance Industries, and Repsol S.A. (OTCPK: REPYY) for their high exposure to middle distillates. It also favors Buy-rated HF Sinclair Corp. (NYSE:PSX) as beneficiaries of broader refining margin strength.
Theme 2: Own Biofuel Leaders
Goldman Sachs highlights Buy-rated Neste Oyj (OTCPK: NTOIY) and Calumet Specialty Products Partners L.P. (NASDAQ:CLMT) for their exposure to sustainable aviation fuel.
Theme 3: Avoid Demanding Valuation
The firm is Sell-rated on Indian Oil Corp. and HelleniQ Energy Holdings S.A. (OTCPK: HLPMF), citing high valuations and weaker FCF generation.
Photo via Shutterstock.
