No, Goldman Is Not Calling For An "Oil Bull Market": Here Is What It Really Said And Why It's Bad News For Banks

Tyler Durden's picture

There has been some confusion overnight whether Goldman, in a note released overnight, is calling for a new "bull market" in oil and commodities in general.

Goldman did not call for a bull market. This is what it did say.

While Goldman has long been one of the bigger bears on commodities in general, and oil in particular, earlier today, the firm's energy analyst Jefferie Currie released a note that offered a faint glimmer of hope for oil bulls. This is what he said:

In oil, most of the demand improvement to lower prices occurred in 2015, and non-US supply reductions have been extremely modest, while in the US supply is only down about 150,000 b/d yoy as of year-end. In metals, supply has yet to materially come off as it is simply too easy to store excess output. What this suggests is that the key theme for 2016 will be real fundamental adjustments that can rebalance markets to create the birth of a new bull market, which we still see happening in late 2016.

Ok so new "bull market"... eventually... maybe. For now, however, Currie explains why $20 oil is not the firm's base case yet: "while the surplus in oil continues to pressure oil timespreads wider and reversed the WTI-Brent spread as European surpluses are moved to the US Gulf Coast where spare storage exists, we still aren’t adopting the $20/bbl scenario as our baseline forecast since balances have not deteriorated further following our mid-December update."

So will Goldman adopt the $20/scenario once a few dozen million Iranian barrels make landfall in the US? We'll wait to find out. For now Goldman is sticking with its $40/oil forecast which in light of today's oil price action may seem a little aggressive:

Barring a supply or demand/weather shock that shifts the balance by more than 340,000 b/d we don’t see the oil market hitting storage capacity constraints, which is why we are maintain our $40/bbl WTI price forecast for 1H16.

Putting this all together, Goldman's conclusion is the following:

While we clearly don’t take a strong stand on spot commodity prices from these levels, we do take a strong view on selling longer-dated commodity prices today. Furthermore, we will turn bullish once the forward curves flatten, as we expect later this year in energy, to incentivize inventories back into the market to accommodate expected deficits. In the meantime, however, the fundamental shifts in energy and metals supply that we believe need to happen will likely occur in three phases: 1) the survival phase, which we just ended with the capitulation of several large offshore producers this week, 2) the inflection phase, which we are now entering, where the least fit producers engage in significant capital restructuring, including the sale if possible or potential shuttering of assets, and 3) eventually the regeneration phase of a new industry with stranded assets ultimately shuttered or optimized. We believe the inflection phase will characterize 1H16; however, once it happens we will likely move quickly into a period where inventories draw and forward curves flatten. At what price level this occurs is still wide open to debate, and we believe the 3D’s will continue to create downside risks until commodity supply adjustments break the negative feedback loop and start the path towards balanced markets.

In other words, what Goldman really said is that once enough capacity is taken offline, there will be a recovery and here is how to gauge the advent of said "recovery" in terms of oil forward curves when determining the difference between a "sell-off" phase and a "recovery":

Well, yes: this is not rocket science and has been repeated by everyone over the past year. The question is when this "inflection phase" will flush all the excess capacity, and according to Currie who was speaking moments ago on CNBC, it could take 9 months at the earliest before the inflection phase ends. Then again, it could take far, far longer considering the length of time it has taken to push unprofitable producers into bankruptcy.

And herein lies the rub, because the more energy suppliers go into bankruptcy to remove the excess supply which is the critical condition of Goldman's upside case, the greater the shock will be among the banking system which is clearly underreserved for a mass default wave. To wit, just moments ago Wells admitted that it is among the most exposed banks to the energy sector:


One can be confident that Wells would be less than enthused about the oil "bull" phase to emerge only for the bank to be forced to eat billions in losses, which perhaps expains the following follow up comment from the CFO:


To summarize Goldman's "bull thesis" for oil: yes, there will be a bull market, and oil prices will rise, but first one must prepare for a default wave either domestically, or among the marginal oil producing countries.

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BandGap's picture

When no one is making shit, transporting shit or buying shit, oil is not needed. Let's stop the fucking prognostications and just get down to the bare facts.

And where the fuck are my 1.50/gallon gas prices? Let's get these in here, now!

Takeaction2's picture
Takeaction2 (not verified) BandGap Jan 15, 2016 11:20 AM

IT is very interesting to me that gas prices are holding strong here in Portland, OR.  "They" will hold the price as long as they can..Almost below $29 a barrel bitchez.  Off Topic...This mom of the Benghazi guy that died is fucking pissed.  Look.

greenskeeper carl's picture

Doesn't "Bad news for banks" really just mean bad news for the tax payers here in bail-out land? Not like those guys wil actually be made to eat their losses.

Xibalba's picture

"Banks are people, my friend!" - Mitt Romney

HopefulCynical's picture

Yellen bux are green. Soylent. Green.

"It's people!"

Ham-bone's picture

Federal Reserve Responsible for Oil Glut...China Responsible for Weakening Oil Demand

GreatUncle's picture

On that argument you missed out a player.

FED has economically stopped the population buying through robbery thats the glut.

China can't sell because the population under the FED is skint.

robertsgt40's picture

Bull markets are always around the corner.  The old bull just needs to be gutted first.  Wash, rinse repeat. 

Xibalba's picture

I'm a bull at SDR10...What is the symbol for SDR's anyways?

GreatUncle's picture

"will hold the price as long as they can" is only possible in a centrally planned manipulated rigged economy.

Now if it was true full on capitalist economy then you would have your price.

It ain't so tough luck.

slaughterer's picture

The Fed instructed the TBTF banks to encourage asset sales in distressed energy rather than BKs.  The banks are not underreserved since they do not anticipate defaults if these asset sales take place in a timely fashion.  

Tyler Durden's picture

And these asset sales mean a prolonged oversupply phase

MadVladtheconquerer's picture
MadVladtheconquerer (not verified) Tyler Durden Jan 15, 2016 11:26 AM

And is this not usually the case following a mega-bull run in the commodity space(s)?

Boom--bust--boom--bust.  Some things never change.

Nothing to see here; move along and prepare your acquisition list.

greenskeeper carl's picture

A bit off topic, TD, but did you guys get hit this morning? The site has ben acting funny...

Tyler Durden's picture

Traffic surge took one of our servers out.

Baldrick's picture

so when shit goes to hell everyone runs to the crazy conspiracy theory site? lol!

Deathrips's picture

When the unthinkable happens people start looking where they dismissed and skoffed in the past..leading them here.

Great now i get to tell a bunch of red/blue statist morons to fuck off.




this site has ben and janet acting funny ; ) 

oldschool's picture

I suspect that's true if the assets immediately produce.  If they're held for better times, then not so much.  It seems one would need to know who's buying and what their intent is to accurately gauge the extent to which these sales will prolong the present glut. 

BandGap's picture

Their assets are on the line? No way this covers the credit extended to them. This has to be a delay tactic.

actionjacksonbrownie's picture

And who exactly is buying these distressed assets at fire-sale prices??


Answer: Those who will profit handsomely in the future.

MadVladtheconquerer's picture
MadVladtheconquerer (not verified) actionjacksonbrownie Jan 15, 2016 11:45 AM

So, the moral of the story:  buy distressed assets at fire-sale prices and profit handsomely in the future.

MadVladtheconquerer's picture
MadVladtheconquerer (not verified) Jan 15, 2016 11:28 AM

Well, i don't know why I came here tonight;

I got the feelin' that something ain't right;

I'm so scared I guess I'll fall off my chair

and I'm wonderin' how I'll get down the stair;

Clowns to the left of me, jokers to the right;

here I am stuck in the middle with a lotta glue:


Bill of Rights's picture

Fed Willamns

  • We have achieved our goal of maximum employment

The Atlanta Fed is about to publish a tracking estimate for Q4 growth that will be around a 0.5% annualized pace.

Part of me wants to see the economy crater just to see all credibility of central bankers evaporate.

GRDguy's picture

And defaults mean that TITLE makes it way to fewer hands.  They're treating oil producers just like miners.  Loans won't be paid, so those who created "money" out of nothing will get TITLE.  That's the goal of agents of The Great Red Dragon "to own the earth in fee-simple."  

HopefulCynical's picture

Yep. Exchanging imaginary money for tangible assets. Banksterism 101.

The one glimmer of hope for a political solution is that Rand Paul wins Iowa and/or New Hampshire by such a wide margin that the oligarchy can't rig things without exposing themselves to even the most ardent Kool-aid drinkers.

If he wins after being excluded from the neocon-controlled GOP debate, that will send a signal. If nothing else, the corporate media's coverup of it will turn into a raging inferno of Internet conversation.

The most important thing about Rand is that the establishment does not want him to even be noticed, much less win.

A Rand Paul win exposes the men behind the curtain. That is its #1 value, to those of us who do not want Bankster Planet Thunderdome.

cleverusername's picture

i like but everyone has different taste

Dr. Engali's picture

Banks don't get bad news when shit goes south, the tax payers do.

astoriajoe's picture

Keep an eye on the OK earthquakes number. That may also give a clue or confirmation.

Kefeer's picture

OK problem is from fracking.  Go to YouTube DutchSinse channel and he knows more then the USGS.

starman's picture

75C a gallon? Yes!

Proaurum's picture

On the other hand, using the analogy of war torn Syria, once the dust settles you can start to rebuild, but the level of destruction means there may not be much financial capacity left to ever get back to what was before



dot_bust's picture

Even though there's a large amount of demand destruction affecting the oil markets, I find it hard to believe that these low prices are justified.

It seems a bit more probable that the prices are being monkey-hammered down via futures in order to prop the U.S. Dollar. After all, China and other countries have been dumping large amounts of U.S. Treasuries.

So, if oil were to rise in price while Treasuries were being dumped, then the U.S. Dollar would implode rather quickly.

SillyWabbits's picture

There are things known and there are things unknown, and in between are the doors of perception.

Aldous Huxley

There are things known by Goldman Sachs and there are things unknown by Goldman Sachs clients, and in between are the doors of deception.


arbwhore's picture

From the house of $200 oil.

BarnacleBill's picture

"... once enough capacity is taken offline, there will be a recovery..."

I think the expression "No shit, Sherlock!" pretty much covers that judgment.

4 wheel drift's picture

and the muslim gives 150 billion to iran......    talk about a rescue line....

who is this traitor for anyway... ?

El_Puerco's picture


January 13, 2016 "Information Clearing House" - "NEO" - Russia has just taken significant steps that will break the present Wall Street oil price monopoly, at least for a huge part of the world oil market. The move is part of a longer-term strategy of decoupling Russia’s economy and especially its very significant export of oil, from the US dollar, today the Achilles Heel of the Russian economy.}


You miss having someone in your life telling this!

it's completely understandable.

GreatUncle's picture

Taking oil production offline might help rise oil prices but think of this...

A little country like Saudi if it needs to sell a million barrels at $50 dollars and is only getting say $25 then it will produce 2 million now because it NEEDS THE MONEY.

Intentionally Saudi if it allowed it to rise, then shorted the market and produced the 2 million barrels it can the make up the difference in the short ... awesome.

Also if you are stockpiling inventories because you can't sell them then for ever 2x production actually delays the time for the price to fall. Full on retard here, for every year you over produced without demand you have a year to wait before it is used if the demand picke up today ... it ain't.

HalinCA's picture

What better time to let Iran take out the KSA Eastern fields and ISIS at the same time?