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Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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Goldman: Oil Prices Won’t Reach $80


Oil prices soared in recent days, with Brent rising to its highest point since early November. The tightness in the market is real, but prices may not increase a whole lot more from here.

“We don’t think you’re going to get back to those $80 levels again, so you’ve got some modest upside here,” Goldman Sachs’ head of commodities research, Jeff Currie, told CNBC this week.

Currie and his team of analysts laid out a bullish narrative in an April 8 research note. “Brent prices have finally reached $70/bbl, following a fundamentally led rally reflective of a deficit larger than even we had forecast,” the Goldman analysts wrote. The OPEC+ production cuts were phased in quickly, a strategy Goldman dubbed “shock and awe.” In contrast, the group phased in cuts in 2017, which resulted in a protracted effort that only gradually reduced inventory levels.

Meanwhile, sanctions on Venezuela and Iran are knocking supply offline, and turmoil in Libya threatens to hit the oil market with another major outage.

Goldman Sachs was surprised by the speed with which the oil market tightened, and the investment bank hiked its forecast for average Brent prices in the second quarter to $72.50 per barrel, up from $65 previously.

But even as Brent has rallied more than 30 percent since the start of the year, Goldman analysts think that the rally has largely run its course.

“While the macro risk-on environment and the threat of disruptions may drive spot prices even higher, we still expect that prices will decline gradually from this summer as shale and OPEC production increases,” they concluded. “With large spare capacity in OPEC and the Permian basin and a wave of long-cycle projects still expected to come online in 2020, we maintain our $60/bbl forecast for next year.”

The cautious tone is notable given that Goldman analysts do not see any cracks in demand. When CNBC asked Goldman’s Jeff Currie about the possibility of a slowdown in consumption, he rejected the notion. “No — absolutely the opposite. Commodities demand is relatively rock solid, demand is so solid in China right now ... Bottom line, demand looks really good right now,” he said. Related: Smart Money Is Piling Into Oil

The reason that the investment bank does not see oil prices shooting up to $80 is because OPEC+ would be under pressure to begin to unwind the production cuts, while U.S. shale would also kick into a higher gear. If longer-dated oil prices begin to rise, it could stimulate new drilling in the Permian. That could push down prices next year. The flip side is that if production seems to be climbing this year, it would weigh on longer-dated prices, which could ultimately force restraint from shale drillers, pushing prices up in 2020.

Of course, much depends on how OPEC+ manages its next move. Russian President Vladimir Putin demurred on an extension of the cuts in the second half of 2019. Russia seems just fine with current oil prices, and is not in desperate need for higher prices like Saudi Arabia is. More to the point, the higher oil prices go, the more the cohesion around a strategy of production restraint begins to fall apart. 

On top of that, the cuts have rebuilt spare capacity in a big way, which reduces supply risk and mitigates the risk premium given to prices.

Later this year, a series of Permian pipelines are scheduled to come online, which could unlock new production. Finally, non-OPEC production increases from Brazil, Norway, Guyana, Canada and Iraq are assumed next year.

Goldman summed up its argument by saying that what lies ahead for the oil market is basically a rerun of the 1990s, which the bank characterized as “tight spot markets but well supplied forward balances and reflected in steady backwardation with an anchored back-end.” Goldman sees backwardation in the futures curve as a thing that will stick around.


In short, there is upward pressure on prices now, but it may only temporary.

By Nick Cunningham of Oilprice.com

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  • Willard III on April 10 2019 said:
    My belief is that "shale" types such as what is indicated by this article (they also forget that shareholders have endured HORRIFIC returns, asset management, etc. the past year (my belief is that someone is under the impression that OPEC/Saudi won't do what people like me do every day). In any event, the title of the article should be "why do we support such poor economics in the energy industry, destroy shareholder value, assets, etc." - I have made myself clear to who likely signaled or directly requested the release of such what I consider misleading "information" - now if someone has done what I believe (on the surface would be intuitive to the large legion of analytics auto driven "put/short" (p.s. shale and any company my fund invests in will receive a "affirmative that we do not and did not short industry peers - clean, green, bio, offshore, etc. Anyone doing so and intentionally destroying shareholder value "can" feel the financial pain later - and it can be oh so painful. Please update article and Ramona needs to stop pumping she is now at 14-15bbd. Calling tomorrow commissioner! Best, Tripp
  • Mamdouh Salameh on April 11 2019 said:
    Goldman Sachs has got it wrong so many times in the past. Their oil price projections are fickle at the best of times.

    Prices are going to hit $80 a barrel or higher this year because the global oil demand is healthy and China’s demand is rock solid. Moreover, Saudi Arabia is determined to see the global oil market irrevocably balanced and price surging beyond $80 because that is the level it needs to balance its budget.

    The fact that oil prices shrugged off the US Energy Information Administration’s (EIA) announcement of a 7-million barrel build in crude oil inventories speaks volumes about the strength of the global oil demand.

    Furthermore, a big bullish influence at play today is a slowdown in US oil production and a projected production decline of 1-2 million barrels a day (mbd) mostly from US shale oil production by 2020 could translate into a US production range of 10.0-11.0 mbd in 2019 and 10.0 mbd or less in 2020.

    Still, there are some bearish influences such as the failure of US sanctions against Iran’s oil exports and Venezuela’s continued ability to keep its oil production steady despite US sanctions.

    And whilst the political turmoil in Libya has added a geopolitical dimension to oil prices, its impact on oil prices will be very limited since the global oil market has already factored in Libya’s oil production disruptions as a result of continued instability in the country”.

    Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Clint White on April 11 2019 said:
    Goldman Sachs is like a weatherman trying to predict the weather. They know what it is when it happens. Otherwise it's just using a "best guess" and hoping you are right.

    There are storms brewing that will affect oil prices. How severe are these storms? Nobody knows.
  • Greg Burgess on April 11 2019 said:
    $80 oil it is then. Goldman have a long CFD on Premier Oil which equates to 6% of the stock.

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