9 Jul 2015
Bearish on Crude oil, WTI October forecast at $45/bbl – Goldman Sachs
FXStreet (Barcelona) - According to Goldman Sachs, the global oil market surplus will push crude oil prices lower, and further forecast October price WTI at $45/bbl.
Key Quotes
“Fundamentals: Crude oil prices have declined sharply over the past week on growing evidence that the market is still oversupplied. Specifically, June preliminary production data came in well above our forecast with a surge in OPEC production, in particular Iraq. Further, the first rise in the US oil rig count since December suggests that producers can ramp up activity given improved returns at $60/bbl WTI with costs down nearly 30%.”
“With production exceeding even our aggressive forecast, oil demand growth is becoming critical to the oil price outlook in 2H15. While oil demand has so far this year come in even above our out-of-consensus bullish forecast, we view some of this demand strength as (1) weather related, (2) front-loaded, and (3) concurrent with non-observable stock builds. In particular, our modeling suggests that most of the positive demand impulse from lower oil prices has now passed through. Further, had the miscellaneous to balance been real demand, refining margins would be higher, not weaker, as observed this past week since we are nearing the peak in runs.”
“Net, we continue to forecast the global oil market surplus will materialize in a product surplus this fall, pushing crude oil prices and refining margins lower with higher OPEC production further overwhelming even stronger demand growth than we forecast.”
“As a result, while developments in Greece after this Sunday’s surprise referendum result could exacerbate oil price volatility in the short-term, we reiterate our fundamentally driven forecast for lower oil prices into this fall.”
“Price Outlook: Oil rebalancing remains in its early stages with the current cash flow and funding mix stalling it. As a result we believe that as fundamentals reassert themselves and we move past the seasonal peak in demand, oil prices will continue to sequentially decline with our October price WTI forecast at $45/bbl. We keep our Brent-WTI spread unchanged at $6/bbl at 3 and 6 months and at $5/bbl at 12 months.”
“Timespread Outlook: Evidence of a growing market surplus should weigh on timespreads going forward.”
Key Quotes
“Fundamentals: Crude oil prices have declined sharply over the past week on growing evidence that the market is still oversupplied. Specifically, June preliminary production data came in well above our forecast with a surge in OPEC production, in particular Iraq. Further, the first rise in the US oil rig count since December suggests that producers can ramp up activity given improved returns at $60/bbl WTI with costs down nearly 30%.”
“With production exceeding even our aggressive forecast, oil demand growth is becoming critical to the oil price outlook in 2H15. While oil demand has so far this year come in even above our out-of-consensus bullish forecast, we view some of this demand strength as (1) weather related, (2) front-loaded, and (3) concurrent with non-observable stock builds. In particular, our modeling suggests that most of the positive demand impulse from lower oil prices has now passed through. Further, had the miscellaneous to balance been real demand, refining margins would be higher, not weaker, as observed this past week since we are nearing the peak in runs.”
“Net, we continue to forecast the global oil market surplus will materialize in a product surplus this fall, pushing crude oil prices and refining margins lower with higher OPEC production further overwhelming even stronger demand growth than we forecast.”
“As a result, while developments in Greece after this Sunday’s surprise referendum result could exacerbate oil price volatility in the short-term, we reiterate our fundamentally driven forecast for lower oil prices into this fall.”
“Price Outlook: Oil rebalancing remains in its early stages with the current cash flow and funding mix stalling it. As a result we believe that as fundamentals reassert themselves and we move past the seasonal peak in demand, oil prices will continue to sequentially decline with our October price WTI forecast at $45/bbl. We keep our Brent-WTI spread unchanged at $6/bbl at 3 and 6 months and at $5/bbl at 12 months.”
“Timespread Outlook: Evidence of a growing market surplus should weigh on timespreads going forward.”