Goldman Sachs See Long Term Crude Oil Glut And $20 bbl Prices

Goldman Sachs See Long Term Crude Oil Glut And $20 bbl Prices

$GS, $OIL, $USO

A glut of crude may keep Crude Oil prices low for the next 15 years, according to the latest report from Goldman Sachs Group Inc (NYSE:GS).

There’s less than a 50% chance that prices will drop to $20 bbl, most likely when refineries shut in October or March for maintenance, Jeffrey Currie, head of commodities research at the bank, said Wednesday.

Goldman’s long-term forecast for crude is at $50 bbl.

Goldman cut its crude forecasts this month, saying the global surplus of Crude Oil is bigger than it previously thought and that failure to reduce production fast enough may require prices to fall near $20 bbl to clear the glut. Prices may touch that mark when stockpiles are filled to capacity, forcing producers in some areas to cut output, he said.

“The last time we saw a period that was similar to today was 1986, 29 years ago,” he said. “We waited 15 years” for Crude Oil to start rising again.

Lower iron ore, copper and steel prices as well as weaker currencies in commodity-producing countries have reduced costs for Oil companies.

The world is shifting from an “investment phase” of a 30-year commodity cycle to an “exploitation phase,” with shale Oil fields as an important source of output, he said. While Goldman’s official forecasts extend to Y 2020, there is a “very high probability” prices will stay depressed until the end of next decade, he said.

WTI Crude futures finished Thursday at 46.83 or – 0.68%.

Prices are down 12% on the year and 50% over the past 12 months.

Should Crude Oil fall to $20, it would be “1 touch,” he said. Inventories would top out in parts of the world, some producers would shut production and the market would come into balance.

Stay tuned…

HeffX-LTN

Paul Ebeling

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