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The Fear Factor Is Back For Oil

While fundamentals suggest lower oil…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Goldman: Investors Grow Wary Of Another Oil Price Rally

Oil investors have grown wary of another oil price rally as they have doubts about whether U.S. producers would be able to rein in production growth, Goldman Sachs warned in a note.

The investment bank said that even though tailwinds such as global economic growth projections, the possibility of supply disruptions, and discipline among U.S. producers remains, there were misgivings about the last factor.

“Most importantly, investors remain unconvinced U.S. producer discipline will hold,” Goldman wrote in the note, adding, “That supply growth needs to be constrained voluntarily, even in the face of a more constructive demand outlook still leaves investors more focused on other metals and mining, where there is greater confidence in China policy-driven supply constraints.”

Earlier this month, Goldman joined other major banks in revising its oil price projections considerably, saying it expected Brent crude to break the US$80 barrier within the next six months. Goldman sees the price of Brent reaching $75 per barrel within three months, lifting its short-term oil price projection from the previous $62 forecast.

“The rebalancing of the oil market has likely been achieved, six months sooner than we had expected,” the bank’s analysts said in a report, as carried by Bloomberg. Related: The Oil Bubble Has Burst. What Now?

In its new note, the bank pointed out that despite investors’ wariness about U.S. oil production growth, long-term car sales projections for the Chinese market lent support to oil price optimism, as did forecasts on crude oil demand in the United States.

At the end of last year, Goldman Sachs was more optimistic about the speed of the oil market rebalancing than many experts and other banks, and even OPEC itself. The investment bank expected that the global oil overhang will have cleared by the middle of 2018, accelerating OPEC’s exit from the production cut pact that is currently set to expire at the end of 2018.

By Irina Slav for Oilprice.com

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  • John Brown on February 12 2018 said:
    U.S. producer discipline? Really? What discipline means is collusion, conspiracy, and artificially restricting production to push the price higher. That is ILLEGAL in the USA. Why would all U.S. producers restrict production with WTI in the $60s, and Goldman saying it will go into the $80s this year? U.S. producers can make tens of billions at those prices. What Goldman is really saying is that OPEC/Russia have succeeded in idling enough readily available production that the oil industry, and those standing to make billions like Goldman on higher prices, have enough to go on to manipulate prices higher even though there is still a glut of oil on the market. That is unless U.S. producers which have already hit 10.2 million BPD, and will exceed all forecast to hit 11 million BPD by mid-year don't cooperate by illegally restricting production. I doubt that U.S. producers want to go there, so they will take advantage of the oil in the $60s to produce what they can which effectively neuters the cartel power of OPEC/Russia which has had a stranglers grip on the world for 50 years. The sweet spot for oil was WTI around $50 which allowed U.S. producers to make money, but didn't incent them make the billions in investment needed to let production rip, and of course OPEC/Russia make tens of billions a month with that kind of price for oil, but as usual GREED has risen its ugly head, and Goldman Sachs is its spokesperson.
  • Mamdouh G Salameh on February 12 2018 said:
    The global oil market can ignore claims of rising US oil production. What has made oil prices trend upward is a robust global economy and a fast-rising global oil demand buoyed by the fact that the global oil market has re-balanced faster than was anticipated. This re-balancing of the market speaks volumes about the health of the global economy and the strong demand for oil. Therefore, oil investors should not be wary of the oil price surge.

    While oil prices came under intense pressure during the last ten days as a result of the turmoil in the global oil market, they are now resuming their surge and will break beyond $70/barrel and beyond in 2018.

    Dr Mamdouh G Salameh
    International oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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