Goldman Sachs oil prediction

CRUDE OIL, Exxon Mobile, Goldman Sachs, WTI Lagos — Goldman Sachs has made another bold prediction, after the previous report. Even as oil prices seem to throw some relief in the markets with the recent rebound, the investment bank is not convinced this is a sustainable bounce. As oil prices rebounded, with WTI prices bouncing by over a third from March lows, many reasons could be fit to this. Some of which includes:

  • Rig counts down by about 1,000 (or nearly 60%) since hitting the October 2014 high.
  • Spending on some of the world’s largest projects has been cut by a combined $129 billion, a figure that could balloon to $200 billion by 2016.

By consequence, the drop in drilling and spending activities is taking its toll, leading to declines in production. Hence leading to a rebound in price. These activities have sparked optimism that the markets may finally be on for a bullish ride back up.

According to Goldman’s latest report on oil, the investment bank has expressed a contrary opinion, arguing that: “not only is the oil rally a bit premature, but that the rally itself will be “self-defeating.” The rally in oil prices could actually bring most of the drillers back, hence leading to renewed glut and then another fall in prices, possibly a double dip (or triple dip if you count the price declines from February to March 2015).

The Goldman Sachs report says that the problem transcends just a surplus of crude, but also includes a surplus of capital, stating that: “Access to cheap finance has allowed production companies to stay in the game and continue to drill new wells. Even companies that have seen their cash flows dry up or have run into liquidity problems have still been able to find investors willing to pony up fresh capital.”

In summary, the Goldman Sachs oil prediction opines that the setup is forming for another dip in oil prices, possibly as low as $45 per barrel by October. “We find that the global market imbalances are in fact not solved and believe that the rally will prove self-defeating as it undermines the nascent rebalancing,” Goldman analysts wrote in an investor’s note.

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