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Goldman Sachs: ‘Very Oversupplied’ Market To Stop Crude Rally At $55

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Low-cost players such as Russia, combined with an upcoming ‘wall of supply’ from large-scale projects commissioned in the past 5-10 years, and additional supplies from Libya and Nigeria will make it difficult for crude prices to rise above US$55 in the near term, Goldman Sachs’s head of commodities research, Jeff Currie, said in an interview with Bloomberg television.

Oil prices have surged by more than US$5 since the OPEC deal on output was announced a week ago.

At the time of writing, WTI Crude traded up 1.87 percent to US$49.60 and Brent Crude was up 1.75 percent at US$51.76, also on the back of Tuesday’s report by the American Petroleum Institute (API), which showed an unusually strong draw of 7.6 million barrels of oil despite expert predictions that U.S. supplies would increase by 1.5 million units in the wake of multiple draw weeks.

Speaking to Bloomberg, Goldman Sachs’s Currie said he sees the market “very oversupplied” next year, and it was the oversupply side that made the OPEC members reach the agreement to limit the cartel’s production to a band of between 32.5 million and 33 million barrels a day, according to the analyst.

Low-cost players like Russia are increasing production, as well as market share, and that’s the “core of the new oil order”, the analyst noted.

Large international oil companies “destroy wealth, and right now they are not focused on return on equity; they are focused on creating cash flow,” Currie said. These companies are focused on “bringing on large-scale projects that could guarantee cash flows over the forward time frame; they are not focused on return”.

Last week, Goldman Sachs said that the OPEC output deal could add US$10 to crude prices. The Goldman analyst team, however, noted that it was skeptical about the chances of success for the deal. The bank pointed out that OPEC members don’t always feel obliged to stay within quotas, which will contribute to the ongoing uncertainty on oil markets.

By Tsvetana Paraskova for Oilprice.com

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  • Tave on October 05 2016 said:
    Article could be abbreviated to 3 words: Goldman Short Oil
  • TS on October 06 2016 said:
    Just to expand on what has been said earlier by Tave.....and let the fund managers in our company make a lot of money for our investors and hefty bonuses for themselves. Don't care what the supply demand fundamentals are. Who knows? Its all up in the air.

    Everyone knows what they predicted prior to 2014. Can they be relied upon??

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