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Oil rises 1% as Goldman Sachs paints optimistic picture

Pump jacks operate near Loco Hills on April 23, 2020 in Eddy County, New Mexico. - Permian Basin Crude oil extraction is one of the main economic drivers of this area, and the industry is looking to take a hit after the price of oil dropped below due to decline in demand from the novel coronavirus pandemic. US oil surged on April 24 and headed for a positive finish to a torrid week that saw prices drop below zero, as output cuts and US-Iran tensions lifted coronavirus-ravaged markets. (Photo by Paul Ratje / AFP) (Photo by PAUL RATJE/AFP via Getty Images)
Pump jacks operate near Loco Hills on April 23, 2020 in Eddy County, New Mexico. Photo: PAUL RATJE/AFP via Getty Images

US oil futures were rallying on Tuesday, amid increased optimism about reaching a balance of supply and demand in the market.

Crude futures (CL=F) were over 1.1% higher at $43.10 per barrel by 8.15am London time, while European Brent futures (BZ=F) were up 1.2% to $45.84.

Crude oil prices. Chart: Yahoo Finance
Crude oil prices. Chart: Yahoo Finance

Over the weekend Goldman Sachs reiterated its bullish stance on oil prices.

“Given our rising confidence in the market rebalancing next year, we are bringing forward our forecast for higher long-dated prices, with 3-year forward Brent expected to reach $58/bbl by end-2021,” analysts wrote in a note sent to clients.

The investment bank also raised its forecasts for spot prices and futures in the crude market.

On Monday, Energy Intelligence Group, a service which covers the international oil and gas markets, also reported that several OPEC+ members had submitted plans for “catch up” cuts to oil production to bring them in-line with wider plans drawn up earlier this year by the group of oil producing nations. Iraq, Kazakhstan, Equatorial Guinea, and Brunei have all submitted plans to cut production in a bid to support prices, according to the report.

US oil futures continued to be supported by weakness for the dollar. The US dollar index, which measures the greenback against a basket of international currencies, has fallen over 6% since June.

Oil futures are priced in dollars and a weak dollar should theoretically push up the price of oil as the greenback’s purchasing power is less. The US dollar index was down 0.2% on Tuesday.

“The currency has been on the defensive in the aftermath of last week’s changes by the Fed to its policy framework,” said Oliver Mangan, chief economist at AIB.

Oil prices cratered earlier this year as the COVID-19 pandemic led to collapsing demand around the world. Crude futures turned negative for the first time in history in April — meaning investors had to pay people to take future delivery of oil — and crude futures remain around 30% below where they started the year.