Why Goldman Sachs has Had to Revise Its Oil Forecast
Goldman Sachs – A leading global investment bank has reduced its crude oil price forecast for the third time in six months due to continually rising global supply. Goldman Sachs is known to be bullish about Oil’s future, and the move follows rising global supply and slowing demand. Putting into consideration the impacts of Russia, Iran, and Venezuela facing sanctions, the major factor leading to the possibility of lower prices is an increase in the supply of crude oil. Moreover, there are Recession fears in the market, with curbing interest rates that are considered a “persistent headwind for higher prices” by Goldman analysts.
Difficulty Revealing the exact Price Changes
It is important to note that Goldman Sachs has cut its forecast for December Brent and West Texas Intermediate by $9 and $8, respectively. The bank projected a price of $75 a barrel for West Texas Intermediate, the U.S. benchmark, versus $85 previously. However, despite the cuts, Goldman Sachs’ analysts are still feeling bullish about Oil prospects. The bank’s head of Commodity Research, Jeff Currie, said in an interview with Bloomberg Television that the oil market has “gone to a new level of dysfunction” after five years of anemic oil prices.
Other Factors Shaping Oil Prices
The oil sector faces diverse factors that impact prices, leading to higher or lower costs. Below are some of the factors that are significant in shaping the prices of oil:
Demand and Supply
The demand and supply of oil are fundamental factors that dictate the volume of oil that is bought and sold globally—when the demand for crude oil surpasses supply, inevitably, the prices will rise, and vice versa. This is why the balance in the industry is essential. When oil-producing countries cut supply, it creates a rise in prices, and when they lift output, it causes a reduction in prices. Unfortunately, the demand for crude oil has practically shifted due to changing consumption patterns from the inhabitants globally.
Production Cuts
OPEC nations have immense power in stabilizing the prices of oil. The oil producers can meet and cut back supply by a mutually agreed volume to buoy the prices. Such that in December 2018, OPEC united with Russia and other major oil producers outside the cartel to reduce oil production; the aim was to combine efforts to keep crude prices above a crucial level of $50 a barrel.
Geopolitical Tensions
Geopolitical tensions, including conflict and political instability, are significant factors that impact the price of oil in the world market. For instance, the collapse of crude oil production in Nigeria due to the activities of militants in the Niger Delta. Despite the rising shale oil production in the United States, reliability on Middle Eastern oil for the Asian market, combined with restive politics in nations like Iraq, Syria, and Iran, means that any problem with one of the big oil producers like Saudi Arabia will impact the oil prices worldwide.
Transportation Costs
Another factor shaping the oil prices is the cost of transportation from the point of production to the buyers. Further, the more accessible it is to transport oil, the lower its selling price. The oil-consuming nations often blame the oil-producing nations of hiking oil prices through transportation costs.
Summary
Goldman Sachs, one of the world’s leading investment banks, has revised its crude oil price forecast for the third time due to rising global supply and slowing demand. An increase in the supply of crude oil from countries facing sanctions such as Russia, Iran, and Venezuela are a major factor in the prospects of lower prices. Moreover, there are recession fears in the market, with curbing interest rates considered a “persistent headwind for higher prices” by Goldman analysts. However, the bank is still feeling bullish about oil prospects, despite the cuts.
Additional Piece
The COVID-19 pandemic had a significant impact on the world markets, including the oil and gas industry. Lockdowns and travel restrictions were put in place globally, which led to a fall in oil prices at a level never seen before. The pandemic exposed the over-reliance of the industry on crude oil with demand dropping by 20 million barrels per day due to reduced transport, industrial activities, and aviation. According to the International Energy Agency, the oil and gas sector experienced its worst crisis, with oil prices crashing by 300%. The pandemic also exposed how the lack of storage infrastructure at a time of falling demand was detrimental to the industry, as producers were unable to store crude oil.
Furthermore, climate change is increasingly impacting the oil and gas industry. A rising number of companies are now looking to diversify their business strategies and venture into renewable energy. For instance, Royal Dutch Shell unveiled a plan to spend up to $6 billion annually on new areas, including renewables and hydrogen. Greenpeace, an international environmental organization, has urged oil-producing nations to divest from fossil fuels and move towards clean, renewable energy. This means that the oil and gas industry will have more competition, which will impact the prices of crude oil in the global market.
In conclusion, the oil and gas sector is a subject to various conditions that determine the prices of crude oil in the world market. Factors like demand and supply, the issue of production cuts, geopolitical tensions, and transportation costs profoundly impact oil prices. The industry’s over-reliance on crude oil has been exposed finally, and the industry has to find ways to diversify its means of revenue generation. As more companies move towards renewables, industry players must find other ways to generate revenue, such as venturing into new markets or adopting cost-cutting strategies.
—————————————————-
| Article | Link |
|---|---|
| UK Artful Impressions | Premiere Etsy Store |
| Sponsored Content | View |
| 90’s Rock Band Review | View |
| Ted Lasso’s MacBook Guide | View |
| Nature’s Secret to More Energy | View |
| Ancient Recipe for Weight Loss | View |
| MacBook Air i3 vs i5 | View |
| You Need a VPN in 2023 – Liberty Shield | View |
(Bloomberg Opinion) — Goldman Sachs, one of the most bullish banks on oil’s prospects, has once again cut its price forecasts amid rising global supply and slowing demand.
The bank has now revised its December Brent forecast to $86 a barrel, down from its previous estimate of $95 a barrel. This is Goldman’s third downward revision in the last six months, after it maintained a bullish forecast of $100 a barrel. The Brent contract for August closed at US$74.79 a barrel on Friday (9).
“We have never been so wrong for so long without seeing evidence to change our views,” Jeff Currie, Goldman’s head of commodities research, said in an interview with Bloomberg Television last week.
Increases in supply from countries facing sanctions (Russia, Iran and Venezuela) are a major factor in the prospect of lower prices, according to Goldman. Supply production from Russia, in particular, “has almost fully recovered” despite sanctions from Western countries.
Recession fears are also weighing on prices, with higher interest rates likely to be a “persistent headwind” for higher prices, Goldman analysts including Callum Bruce and Currie wrote in the note.
©2023 Bloomberg L.P.
CONTINUE AFTER ADVERTISING
Related
—————————————————-