Goldman Sachs has adjusted its second quarter (Q2) 2019 Brent oil price forecast upwards by 11.5 per cent from $65/barrel to $72.50/b to reflect stronger assumptions on OPEC output cuts, further tightening of U.S. oil sanctions on Venezuela, and Iran, as well as only moderate growth in U.S. shale production.

OPEC in March tightened the oil market considerably, slashing 570,000 b/d from its February output level, as Saudi Arabia continued to implement production cuts, and Venezuela suffered from extensive power outages on top of U.S. sanctions, an S&P Global Platts survey found.

The 14-country block pumped 30.23 million b/d in the month, the lowest in more than four years, with crisis-hit Venezuela contributing most to the decline.

Nigeria dropped production last month from 1.88million b/d in February to 1.84mbpd, according to S&P Global Platts survey.

“Oil prices have ground higher over the past month, with Brent now trading above $70/b and at its highest level since November. We view current prices and the 28% Brent rally this year as fundamentally driven and justified: reflecting a global market deficit that has been larger than even we had expected, achieved through backwardation and despite only modest speculative sponsorship,” the bank said in a report published this week.

The front-month ICE Brent contract was trading above $70/b Tuesday, with US benchmark NYMEX WTI crude down to $64/b. Nigeria’s Bonny Light traded above $71 per barrel.

Brent is now expected to average $66/b this year, up from $62.50/b previously, while WTI will average $59.50/b in 2019, up from $55.50/b previously, the bank said.

Its 2020 price forecast for Brent is unchanged at $60/b, while WTI is seen averaging $55.50/b, up from $54.50/b previously.

A policy of “shock and awe” led by OPEC kingpin Saudi Arabia was a key driver of a larger-than-expected global oil market deficit, Goldman said.

Platts’ survey found that Saudi Arabia, OPEC’s biggest producer, dropped its production by 280,000 b/d in March to 9.87 million b/d, the lowest since February 2017.

Saudi Energy Minister, Khalid al-Falih, on Monday, said global oil inventories remain above the “normal” level.

Falih’s comments come less than a week after OPEC Secretary General, Mohammed Barkindo, said OPEC and its allies would not relax their crude production quotas as inventories levels needed to drop further despite “marked improvement in market conditions.”

On tightening U.S. oil sanctions, Goldman said further sanctions-related production losses from Iran and Venezuela are likely already priced in.

“The expected impact of the Venezuelan and Iranian sanctions on global heavy crude output – and hence fuel oil supply – has been likely priced in for now and this leads us to find the most compelling Brent-Dubai opportunity in deferred differentials,” Goldman said.

“At our forecast path of Venezuela production, we model that (Middle East crude benchmark) Dubai will trade at a $3.75/b discount to Brent in 2020, with a widening to $3.00/b (versus) current forward of $2.00/b even if Iran and Venezuela production falls 250,000 b/d below our current 2020 forecasts,” it added.

The impact of the tightness in heavier crude has been seen in the front-month May Dubai swaps trading above $69/b for the first time in six months.

Iran exported about 1.64 million b/d of crude and condensate in March, according to data from shipping sources and provisional tanker tracking data S&P Global Platts compiled, down from a recent high of 2.5 million b/d in June, but up from 1 million b/d in November.

Platts Analytics expects Iran’s shipments to fall to 950,000 b/d by the third quarter of 2019 and to 800,000 b/d by the next US waiver deadline in November.

Venezuela’s oil output averaged 740,000 b/d in March, the lowest monthly rate in 16 years, according to the Platts OPEC survey. If secondary sanctions are imposed, Venezuela’s oil output could fall to 500,000 b/d by the final quarter of 2019, according to Platts Analytics.

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