Maybe this time Goldman gets it right? I am looking at a piece of research from today saying that Brent crude, the worldwide benchmark, is headed lower, perhaps as low as $80 by the summer of 2015. This forecast is a radical change from its previous forecast of $100.
And I am also looking at a note from last year when Goldman Sachs (GS) said oil could hit $150 by the summer of 2015.
Same analyst; different forecast.
Last year, when Jeff Currie, the "influential" Goldman Sachs oil analyst, made his super-spike call he said that despite the U.S. shale boom, the oil price will remain high because of sanctions-related supply disruptions from Iran. At that time the Saudis were pumping at a "30-year high," implying that the huge producer was giving it all she got, but while global oil demand has increased as a slower pace, it is still higher than the production increases in non-OPEC countries.
The Goldman client note from back then says "we are not out of the woods yet. Upside risks for oil prices include low inventory levels, limited OPEC spare capacity and geopolitical risks, which are really near an all-time high, with production in a very large number of countries at risk. All of this at a time when China growth is expected to improve. With oil at $110 a barrel at that time, it was a bold call implying a 36% increase in Brent price.
Oohhh, really scary.
How about this time though? After oil plunged more than 30% from its high of June of this year, and 23 companies of the 52% of the S&P energy sector components are down more than 20% in the last three months, it is time for Goldman to sound the alarm. Why? Let's tick them down.
In a piece entitled "The new oil order," the same analyst puts his name to a very compelling theory that, one, accelerating non-OPEC production will outpace demand growth, leaving the oil market oversupplied. Wow, I had thought that the non-OPEC countries couldn't make a difference. Two, the scale and sustainability of U.S. shale oil production "is driving the global cost curve lower." Wow, I had that that despite the U.S. shale gas "boom," we would still be oversupplied. In fact, U.S. production needs to slow to get the price stabilized.
Incredibly, it seems that the geopolitical tensions must have lessened despite the advancements of ISIS and the wild card of Russian oil. Looks like that China demand didn't materialize either.
OPEC core nations are losing pricing power, according to the note, the same core nations that seemed so important a year ago.
Of course, this call is wreaking tremendous havoc with the entire group, despite the horrendous pressure that it's been under. Continental Resources (CLR) and Anadarko (APC) in particular are under pressure.
Hmm, to me, perhaps I am being a little too cynical. But what happens if this year's call, which was close to the peak in the cycle, turns out to be as wrong as last year's call? What happens if the incredible declines in the big S&P oils, the worst performing part of the group, actually are just beginning to accelerate, which is implied in this note?
I don't know. Judging by the record of the firm, I guess you have to call me skeptical. Or, and you have to call me a gentleman, too, because there is a time I would have burned the whole oil group in effigy and ridiculed them. Now I just am a tad askance about this big bold call that is crushing the group long after it has already bent, spoiled and mutilated.
