Supply constraints and a global economy rapidly rebounding from the debilitating COVID-19 pandemic lays the foundation for much higher oil prices, Goldman Sachs global head of commodities research Jeffrey Currie argues. 

"Near term our highest conviction long is oil where we still see brent [crude oil] averaging $80/bbl this third quarter with potential spikes well above $80/bbl. Global demand likely rose to 97.0 million barrels a day in recent days from 95.0 million barrels a day just a few weeks ago as the U.S. passes the baton to Europe and emerging markets, where even India is beginning to show improvements," Currie said in a new research note to clients on Friday. 

To be sure, oil prices have had a bullish bias of late. 

At more than $73 a barrel currently, brent crude oil prices are trading at levels not seen since the fall of 2018. The price of brent crude is up about 55% year-to-date. 

Recent gains in the oil patch have been fueled by indications of strong demand meeting low levels of supply. 

The Energy Information Administration (EIA) reported this week that U.S. crude oil inventories fell by 7.4 million barrels for the week ended June 11. Meanwhile, the National Bureau of Statistics reported that crude oil throughput in China for May rose 4.4% versus last year to hit a record high.

Warns Goldman's Currie, "With such robust demand growth against an almost inelastic supply curve outside of core OPEC+ (GCC + Russia), the global oil market is facing its deepest deficits since last summer at nearly 3.0 million barrels a day. With refiners quickly responding to small improvements in margins, petroleum product supplies have broadly matched this jump in end-use demand, leaving this deficit almost entirely in crude. We expect further demand increases towards 99.0 million barrels a day by August of which half can be accounted for purely from DM seasonality alone. By then the entire global post-COVID surplus will likely have vanished, by which point we believe elevated crude oil prices could be the catalyst to refocus the market on the reflation trade."

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Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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