Oil prices will settle in the $55-$60 range in the long term, according to Jeff Currie, the lead commodities researcher at Goldman Sachs, who spoke to Bloomberg this week regarding new developments in commodities markets.
In the interview, Currie described a survey he conducted with oil industry leaders in Texas. He asked members of the Houston energy sector where they expected prices to go over the long term and they answered with consensus: somewhere between $55 to $60.
Just a few years ago, the range would be a $50 band, he said, adding that the new certainty in supplies has caused the near unanimous agreement.
Compliance by members of the Organization of Petroleum Exporting Countries (OPEC) to their November deal to cut production has been stronger than anticipated, Currie noted. The latest figures say the bloc has cut 94 percent of what they promised.
But American producers – who are not bound to any international production limits – are counteracting many of the corrective measures on the supply side. Shale oil production, which takes little time to bring online once prices become favorable, is slated to enter a boom, with output exceeding nine million barrels by the end of 2017.
“The U.S. supply response seems to be gaining momentum much faster than previously thought,” Currie said. “It’s because of two factors. One is productivity gains, but also access to capital.”
Still, the Wall Street researcher characterized underlying supply-demand fundamentals as “supportive” as opposed to the market dynamic before the November deal.
“In 2012 and 2013, it was a period when the oil [barrel] price started the year at something like $110.60 and finished the year at $110.50, but you still generated an 11 percent annualized return over that period,” he said. “We think we are headed into a very similar environment.”
By Zainab Calcuttawala for Oilprice.com
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