The recent oil price decline is not justified by fundamentals, Goldman Sachs says, keeping its estimate of Brent averaging $85 per barrel in Q4.
The move lower in oil prices so far this month has been excessive amid overblown worries about a strategic petroleum reserve (SPR) release and a hit to demand from the COVID resurgence in Europe and the United States, the U.S. investment bank said in a note to clients carried by Argus.
Since the end of October, Brent Crude prices have dropped by $8 per barrel to below $80 late last week. Concerns about the global economy with the return of lockdowns in Europe and expectations of a coordinated release of reserves from the United States and major Asian oil consumers have dragged the price of oil down over the past two weeks.
Goldman Sachs, however, believes that these concerns are excessive.
"Our pricing model shows that the $8/bl price decline since late October is equivalent to the market pricing in a 4mn b/d combined hit to demand or increase in supply over the next three months," Goldman Sachs's analysts wrote in the note cited by Argus.
"This would be ... equivalent to a 100mn bl government stock release as well as a 1.75mn b/d hit to demand due to the current Covid resurgence," the investment bank noted.
Goldman continues to keep its $85 forecast for average Brent prices this quarter, seeing the downward move as "excessive", especially in light of the fact that the oil market is still in a deficit.
Last week, the investment bank said that the market had already priced in a concerted release of crude oil from national reserves, adding that the U.S. was expected to release between 20 and 30 million barrels, with the rest of the group likely releasing a combined 30 million barrels.
After a 3% plunge on Friday, oil prices were slightly up on Monday morning, with Brent trading at just over $79 a barrel and WTI Crude at $76.15.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More
The move lower in oil prices so far has been caused by concerns about rising levels of COVID-19 cases particularly in Europe and the possibility of a return to lockdown in the world’s largest economies. I strongly believe this is unthinkable because of the very adverse impact it will have on the global economy, the availability of billions of vaccines around the world and the also opposition by people to a return to lockdown.
Oil prices will soon recoup their temporary losses with Brent crude surging to $85 a barrel and possibly even touching $90 before the end of the year.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
"What's good for General Motors is good for America!" sure isn't true of Delaware, Tennessee, Quebec, Louisiana or Ohio but has been great news for Tesla in the Bay Area and Sparks, Nevada later Shanghai and now booming Austin, Texas and presumably Berlin Capital of a United Germany.
Now there is Rivian *AND* Lucid plus all of the others (Canoo, Aptera, Solo, Arcimoto, Zero Motorcycles, LiveWire1 Harley Davidson, OneWheel, etc) plus all of the "fool cell" names to include Toyota and now even Hyundai for a Class 8 to compete with Nikola. Plus a pure BEV public bus Company from Manitoba and presumably Proterra.
And now "Amtrak Joe" plus SunRail, Brightline, Denver Rapid Transit, SEPTA...the list for alternative to diesel and gasoline in the USA is endless at the moment.
And of course just the fact that the USA exports oil is bearish for oil prices in point of fact.
Anyhow the bulls have had a spectacular run in every asset class save one for 2021 namely precious metals with gold getting annihilated today although still not as bad as palladium...which might be really, really, really bad news for the gold nutters if you think about palladium as truly a critical war time metal unlike gold.