from another source:
Goldman Sachs has stood by its ultra-bearish forecast in the wake of Opec's latest meeting
Oil companies and countries dependent on revenues from 'black gold' might be forgiven for thinking that things cannot get much worse. Goldman Sachs, however, believes that they can.
Analysts at the US investment banking giant issued a note on Thursday in which they stood by the ultra-bearish forecast for global oil prices to slump to $20 a barrel next year, before recovering in any meaningful way, says CNBC. Here are four arguments supporting the case for another major drop:
Stockpiles just keep rising
Yesterday another report revealed that oil reserves were rising in the US – a bearish indicator for the ongoing global supply glut. The Wall Street Journal cites an estimate from data provider Genscape that stockpiles at the Cushing, Oklahoma depository, which acts as the delivery point for US benchmark West Texas Intermediate futures contracts, rose by 1.4 million barrels last week.
The rise mostly took place in the second half of the week and followed the US energy watchdog's report of a surprise surge of 4.8 million barrels in overall domestic crude oil reserves last week. In response, WTI fell to a six-year low of below $35 a barrel and international counterpart Brent crude fell close to one per cent to a new seven-year low of a fraction above $37.
Production is not falling enough
It is one of the enigmas that has confounded analysts: why production has remained resilient despite the painful fall in the oil price. US shale in particular, which is thought to be more expensive than much of the rest of global production, has fallen from its peak output of 9.6 million barrels a day but is still above nine millions barrels and has been edging higher of late.
Goldman Sachs says that with Opec already pumping 1.5 million barrels a day above a 30 million barrel production 'ceiling' – and having now abandoned any targets for production after its latest meeting ended in acrimony – there is simply not enough of a decline being signalled elsewhere to rebalance the market.
Fed rates rise will hit demand
Demand is also a key factor in the supply equation and, again, it has been disappointing. Efficiencies in fuel use, warmer weather caused by the El Nino phenomenon and a new drive to reduce fossil fuel burning to protect against climate change are all preventing drawdowns surging to meet or exceed supply.
The decision by the Federal Reserve this week could exacerbate this issue, traders fear. Lower oil prices were starting to filter through into greater fuel purchases, but if the dollar rises strongly on the back of the rates increase this will hold prices higher for overseas buyers and could undermine that trend.
Budget deal is bad news for Brent
For the international benchmark, Brent, there was further bad news this week in the form of a new budget deal in the US congress that controversially saw the Democrats cave in to Republican demands to remove a ban on domestic oil exports. The protectionist measure has meant that international oil is bought at a premium to the US benchmark and could see more oil flood onto the global market.
The net result of this could be that the 'spread' between the two prices shrinks – most likely through a fall in the relative premium paid for Brent. At some point this week the spread fell to less than $2 and some industry analysts reckon that over time the two prices may even reach parity.
Any rises being predictee
Plenty, in fact the consensus view probably still remains for oil to enjoy higher average prices in 2016 than this year. But these forecasts are falling every time they are republished and many experts are now predicting a near-time fall lower – perhaps to around $30 a barrel – before a volatile recovery pushes prices to within a wide $40-$60