Goldman Sachs on Oil & OPEC

Goldman Sachs on Oil & OPEC

Expectations of an extension of an oil production cut agreement by the Organization of the Petroleum Exporting Countries and major producers led by Russia are supporting prices, but there are risks for a renewed surplus later next year, Goldman Sachs analysts wrote in a report published on Monday.

A nine-month extension would normalize OECD inventories by early 2018, in our view, but we see risks for a renewed surplus later next year if OPEC and Russia’s production rises to their expanding capacity and shale grows at an unbridled rate,"the Goldman analysts said.

To avoid the boom-bust cycle, sustained backwardation in prices will help, the Goldman analysts added. This is as the low deferred prices will restrain access to credit for shale producers. Backwardation happens when spot and near-month contracts are priced higher than contracts in the forward months. Costs will also play a role in setting shale’s growth path but we do not forecast sufficient inflation at this point to achieve the required slowdown next year, the investment bank said.

In the current environment, Goldman believes that the largest imbalance is the potential for a large surplus in 2018, leaving low deferred prices to resolve this credible threat. Low-cost producers selling their output in the spot market should further be incentivized to reduce inventories, to generate the backwardation linking spot oil prices near current levels and low deferred oil prices.
Crude oil prices have been gaining steadily in the last few weeks but are slightly lower in Asia on Tuesday with U.S. West Texas intermediate and European Brent futures down 0.4 percent lower around $51 and $53.60 a barrel respectively, as prices give up some recent gains after President Donald Trump proposed the sale of half the country’s strategic oil reserves in his budget plan. Goldman is keeping its Brent spot price of $57 a barrel for the second half of 2017.Oil remains in the uptrend in anticpation of the OPEC’s meeting. Its outcome will be crucial for the commodity. source: xStation5


About Author

Our research team will provide all technical and fundamental news as well as all inside information coming from London's City desks to help investors trade fx and stock markets. Be sure that you already follow our twitter account @XMarketsuk in order to be up to date with all latest analysis, news and inside information.

Disclaimer: This material is considered a marketing communication and does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. X Markets and XSpot. do not take into account your personal investment objectives or financial situation. X Markets and XSpot. make no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any member of X Markets Websites’ team, a third party or otherwise. This material has not been prepared in accordance with legal requirements promoting the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. All expressions of opinion are subject to change without notice. Any opinions made may be personal to the author and may not reflect the opinions of X Markets and XSpot. This communication must not be reproduced or further distributed without prior permission.

Risk Warning: Forex (FX) and Contracts for Difference (’CFDs’) are complex financial products that are traded on margin. Trading FX and CFDs carries a high level of risk since leverage can work both to your advantage and disadvantage. As a result, FX and CFDs may not be suitable for all investors because you may lose all your invested capital. You should not risk more than you are prepared to lose. Before deciding to trade, you need to ensure that you understand the risks involved taking into account your investment objectives and level of experience. Past performance of FX and CFDs is not a reliable indicator of future results. Most FX and CFDs have no set maturity date. Hence, a CFD position matures on the date you choose to close an existing open position. Seek independent advice.