• 1 day PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 1 day Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 1 day Syrian Rebels Relinquish Control Of Major Gas Field
  • 1 day Schlumberger Warns Of Moderating Investment In North America
  • 1 day Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 1 day Energy Regulators Look To Guard Grid From Cyberattacks
  • 2 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 2 days New Video Game Targets Oil Infrastructure
  • 2 days Shell Restarts Bonny Light Exports
  • 2 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 2 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 2 days British Utility Companies Brace For Major Reforms
  • 2 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 2 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 2 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 2 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 3 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 3 days Rosneft Signs $400M Deal With Kurdistan
  • 3 days Kinder Morgan Warns About Trans Mountain Delays
  • 3 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 3 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 3 days Russia, Saudis Team Up To Boost Fracking Tech
  • 4 days Conflicting News Spurs Doubt On Aramco IPO
  • 4 days Exxon Starts Production At New Refinery In Texas
  • 4 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 4 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 4 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 4 days China To Take 5% Of Rosneft’s Output In New Deal
  • 4 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 5 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 5 days VW Fails To Secure Critical Commodity For EVs
  • 5 days Enbridge Pipeline Expansion Finally Approved
  • 5 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 5 days OPEC Oil Deal Compliance Falls To 86%
  • 5 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 5 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 5 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 6 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 6 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 6 days Aramco Says No Plans To Shelve IPO
Alt Text

IEA: Oil Prices To Hit A Ceiling In 2018

Global oil markets appear to…

Alt Text

Oil Prices Poised To Rise In Early 2018

A consistent fall in comparative…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Goldman Sachs: Inventory Drawdowns Will Not Continue

GS

The September oil price rally was predicated on improving oil market fundamentals, bolstering confidence that the rebalancing process was accelerating. But the inventory declines reported in the third quarter might be “as good as it gets,” with inventories returning to small increases next year, according to a new report from Goldman Sachs.

The third quarter appeared to finally be the turning point for an oil market suffering from a more than three-year downturn. The OPEC deal was finally bearing fruit—inventories started posting substantial declines after a few years at or near record levels. That translated into a newfound bullishness in the market, and sizable price increases for WTI and Brent, particularly in September.

But Goldman says that the third quarter could have been the peak for drawdowns, due to a variety of factors that could partially reverse going forward. For example, oil production outside of OPEC (excluding the U.S.) fell in recent months, largely due to maintenance in the North Sea, Azerbaijan, Kazakhstan and Brazil.

Also, OPEC compliance was particularly high in the third quarter, with moderating output in Libya and Nigeria combining with stepped-up efforts in Iraq. Goldman said that oil production from OPEC (excluding Libya and Nigeria) and Russia hit 41.55 million barrels per day in the third quarter, adding just 110,000 bpd from the quarter before. That was less than half of the 230,000 bpd increase that the investment bank originally predicted.

Another reason why the bullishness over the past few months may prove to be fleeting is that demand was unusually robust, averaging a 2.3 mb/d annualized increase in the second quarter, followed by a “still robust” 1.6 mb/d growth rate in the third. In other words, demand grew by 300,000 bpd more than Goldman predicted earlier this year.

Related: Sustainability Or Growth? E&Ps Face A Difficult Decision

Finally, U.S. shale’s growth was “delayed,” perhaps by the growing backlog of drilled but uncompleted wells (DUCs), but also because of Hurricane Harvey, which temporarily knocked U.S. oil production offline.

All of these trends combined to significantly tighten the oil market in the third quarter, leading to impressive inventory declines.

However, these trends may not be durable. U.S. shale, for example, is expected to resume growth, adding 290,000 bpd of new supply in the last three months of 2017, according to a Goldman Sachs forecast. Meanwhile, with several oil fields in the North Sea, Brazil, Azerbaijan and Kazakhstan set to resume after maintenance, non-OPEC supply will pick up.

Moreover, OPEC compliance could have possibly hit a high watermark. Preliminary data for September looks like OPEC oil exports jumped by 0.5 mb/d, month-on-month, as shipments rose in Iraq, the UAE and Nigeria. Libya might also add supplies back into operation in the fourth quarter.

Put all of these factors together, and the inventory decline rate will narrow sharply from 795,000 bpd in the third quarter to a modest decline of just 180,000 bpd in the fourth quarter. Then, inventories start to build again in the first quarter of 2018 at a rate of 60,000 bpd, Goldman predicts.

It’s a rather bearish conclusion. Essentially, the markets began to think that rebalancing was accelerating in the third quarter, but the pace of tightening could have simply been at its strongest point. Related: Goldman: Expect Oil Stocks To Catch Up With Rising Oil Prices

Nevertheless, the exceptional stock drawdown in the third quarter erased a lot of excess supply on the market. Inventories are dramatically lower than they used to be, and even if the rebalancing effort loses some momentum, few expect oil prices to drop substantially from current levels.

Goldman highlighted one particularly encouraging development in its report. Brent oil futures are still in a state of backwardation, which it sees as proof that market conditions are much tighter than they used to be. “[As] we have argued previously, timespreads don’t lie about fundamentals,” Goldman analysts wrote, pointing out that a fundamentally weak oil market would not be able to support backwardation for very long. “Today’s spread levels tell us the rebalancing has progressed significantly.”

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • JustMeNS on October 12 2017 said:
    Goldman must be shorting oil. Goldman is a contrarian indicator.
    Shale is declining. EIA report out TODAY shows domestic production declined 81,000 barrels compared to last week. This is the start of the shale decline and will accelerate. Overall crude oil drawdowns were 3.9 millions barrels including strategic reserves (-1.2) This is a bull market run. It will be erratic but the price is moving up.
  • Dlowrie on October 12 2017 said:
    Just another proud analyst with a contrarian model. No one even knows what is really going on..... This article is akin to me estimating what color my wife will paint the house in March. Good to know Goldmans position at least. Even though they are still providing equity to E&P companies with uneconomic assets.
  • Doc Saudi on October 13 2017 said:
    Goldman has been reliably and consistently wrong for the better part of three years running.
  • Robby on October 13 2017 said:
    Goldman is a big oil short, they have set a PT of low 40s for WTI just 3 months ago , look where is it now?

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News