Despite its dubious track record, oil prices are stumbling after Goldman Sachs releases a report calling for oil prices to remain lower for even longer, calling for a drop to $50 within the next 6 months.
[7]
Via Goldman Sachs,
Crude Oil: Lower for even longer
Fundamentals: Ex SPR US crude stocks built 3.6mb in Sep vs. a seasonal draw of 2 mb. Cushing on the other hand drew 3.9 mb vs. a seasonal draw of 2 mb though we are heading into peak refinery maintenance period. Fundamentals remain weak and we view the market to be strongly oversupplied. Sep crude, gasoline, distillate, jet, fuel oil and unfinished oil inventories have built 8.9 mb vs. a seasonal build of 1.5mb. The market now requires non-OPEC production to shift from growth to large declines in 2016. The uncertainty on how and where that adjustment will take place has increased significantly.
The potential access to capital in the US means that elevated financial stress needs to be maintained to eventually attain these adjustments. There is also the potential for prices to collapse to production costs if the oversupply breaches logistical and storage capacity. We estimate 2015 oil demand growth at 1.62 mb/d and we forecast 2016 global demand growth to be 1.28 mb/d which leaves the market 400 kb/d oversupplied.
Price Outlook: Prices have declined sharply over the past month to our previous $45/bbl forecast. Part of this was precipitated by macroeconomic concerns but in our view, it was also warranted by weak fundamentals. In line with our oversupplied outlook, we have changed our 3, 6 and 12-month WTI forecasts to $42/bbl, $40/bbl and $45/bbl.
Time spread Outlook: Time spreads should remain in contango as the market needs to incentivize storage since there is insufficient demand to absorb supply.
Charts: Bloomberg
