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Goldman Sachs sees less of a downside risk to oil prices from higher-than-expected inventories, noting that lower OECD commercial stocks could add $2 to its end-2023 Brent outlook of $86 per barrel.

OECD commercial stocks, which the Wall Street investment bank estimated were equal to about a third of the more than 9 billion barrels of global stocks, were 30 million barrels lower in August than it had previously forecast.

Brent oil prices held near $84 a barrel on Wednesday after touching their highest since January earlier in the month on the back of a more than 14% rally in July.

“The main reason for oil outperformance is that the oil market continues to price sizeable deficits,” Goldman analysts wrote in a research note on Tuesday, adding that draws tempered the bearish risk of what they previously called “persistently higher-than-expected inventories”.

Goldman said higher refinery runs slashed US and Asia crude stocks by 21 million and 11 million barrels, respectively, since the end of June.

Together with a China-driven fall in non-OECD stocks by 50 million barrels this month, and a Saudi Arabia-led draw of 20 million barrels from stocks on water, global oil stocks saw a month-to-date decline of 80 million barrels.

Oil benchmark Brent’s price structure reflects tighter market

Another bullish risk to prices from lower-for-longer OPEC+ supply has grown with “Saudi’s reiterated commitment to cuts and apparent willingness to extend and even deepen cuts”, Goldman said.

“Saudi production could well stay its current low 9 million barrels per day (bpd) level for longer if Saudi Arabia envisions a more aggressive price target.”

Goldman said China demand news was mixed and suggested that weakness in macro data was concentrated outside the oil-intensive services sector while international jet demand was still recovering.

It also noted a bearish risk from higher Iranian supply, citing an estimated 500,000 bpd rise in exports through Aug. 20.

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