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Goldman Sachs predicts a banner year for Big Oil in 2018 thanks to a boost in available cash to fund expensive oil exploration projects and pay out dividends to investors, according to a new report by Bloomberg.
Oil majors from Royal Dutch Shell to Exxon Mobil can expect higher oil prices over the course of 2018, flushing mergers and acquisitions budgets with cash for the first time since prices fell in September 2014, Goldman’s head of energy research, Michele Vigna, said.
Three years of oil prices have also made it impossible for smaller producers to compete with the low-cost techniques of tenured majors in the industry. This has reinforced the multinationals’ dominance in the global energy game, Vigna said.
The extension of the OPEC/non-OPEC production cut pact through to the end of 2018, and especially the fact that the cartel and allies included an option to review progress in June, reduces the risk of both sudden supply surges and excessive drawdowns, Goldman Sachs said earlier this month, noting that investor anxiety is higher than it should be.
After months of speculation and conflicting comments and hints from various oil officials, OPEC and the Russia-led non-OPEC producers agreed on November 30th to continue restricting production through the end of 2018, as expected. But the deal’s partners also included the phrasing:
“In view of the uncertainties associated mainly with supply and, to some extent, demand growth it is intended that in June 2018, the opportunity of further adjustment actions will be considered based on prevailing market conditions and the progress achieved towards re-balancing of the oil market at that time.”
But the top bank’s attitude regarding oil price movements has not been consistent. Goldman Sachs warned just two days before OPEC’s crucial meeting that the outcome was uncertain, heightening oil market volatility further. In a research note, the bank said that there was no consensus among the participants in the deal about its extension, and there were signs of an acceleration in the rebalancing of supply and demand, which could dampen motivation to stick to the cuts.
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on…