Saudi Arabia's pledge to cut its oil output by more than required under its pact with other OPEC+ producers points to weakening oil demand following new COVID-19 lockdowns and sets the stage for a tighter market in the second quarter, Goldman Sachs said in a note released on Tuesday.
"Saudi's action and the prospect for a tight market in 2Q21, as the rebound in demand stresses the ability to restart production, will likely support prices in coming weeks, leading us to reiterate our bullish oil view," the analysts wrote.
Benchmark Brent oil prices on Wednesday hit their highest level since February after Saudi Arabia, the world's biggest oil exporter, said it would cut by an additional, voluntary 1 million barrels per day (bpd) in February and March.
Two OPEC+ members - Russia and Kazakhstan - will bump up their output by a combined 75,000 bpd while other producers will hold production steady.
Producers are wary of the impact of new lockdowns on oil demand.
China on Wednesday introduced more restrictions near Beijing following tougher measures announced by Germany and Britain.
Goldman analysts said their updated first-quarter 2021 market balance outlook had weakened and that the latest OPEC+ plans point to a surplus of 250,000 bpd versus a deficit previously.
The "OPEC+ March production level will still be low just as global demand starts rebounding sharply driven by warmer weather and rising vaccinations. This points to the group potentially struggling to ramp-up output quickly enough," they wrote.
Goldman expects sustained backwardation and lower implied volatility and sees year-end Brent prices at $65 per barrel.