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Page added on April 7, 2016
Goldman says $35 oil will correct oil glut, lift market in 2017
Goldman Sachs says $35 oil is a “Goldilocks” price, meaning it’s “just right” for the oil market. It’s low enough to keep U.S. crude production declining, which is expected to correct the global oversupply and lift prices next year. But it’s still above cash costs for domestic drillers.
The investment bank’s thesis is current oil prices will prevent a premature U.S. shale recovery and help boost prices to $55 to $60 a barrel next year. But, over the next few months, U.S. production needs to decline faster than in it did in January, they said in a note late Wednesday.
“Our view on a path to a 2017 oil price recovery is contingent on a decline in U.S. oil production,” the analysts wrote. U.S. crude sank 41 cents in early trading Monday to $37.34 a barrel on the New York Mercantile Exchange.
They added that the current U.S. rig count, which has dropped by 174 rigs this year, points to a drop of 725,000 barrels a day in 2016, as long as production declines by 85,000 barrel a day monthly for the rest of the year.
“Producers are in fact taking down activity, though it remains to be seen whether they will adhere to declines if oil prices begin to rise more significantly,” Goldman stated. Oil prices would have to rise above $50 a barrel for companies to boost spending levels.
U.S. oil production sank by 56,000 barrels a day in January, and December’s output was revised down 0.3 percent in the latest data by the U.S. Energy Information Administration.
Crude output from the Organization of the Petroleum Exporting Countries increased by 100,000 barrels a day in March, as Iran and Iraq put out more oil, according to a Reuters survey.
But even if the group doesn’t agree to cap production at a meeting later this month, Goldman said, an expected increase of 600,000 barrels a day this year would still allow global oil supply to realign with demand.
“While we view recent supply data from both the U.S. and OPEC as somewhere between in line and moderately bearish for prices,” it’s not enough to change Goldman’s outlook, the bank stated.
9 Comments on "Goldman says $35 oil will correct oil glut, lift market in 2017"
shortonoil on Thu, 7th Apr 2016 5:51 pm
“The investment bank’s thesis is current oil prices will prevent a premature U.S. shale recovery and help boost prices to $55 to $60 a barrel next year.”
By using the previous 55 year price history as the distribution it can be calculated that there is a 97.5% chance that the average yearly price of oil will not reach $60 in 2017 from its present level of $37.50. The Etp Model also says that it is theoretically impossible. If Goldman analysts do not want to invest the effort to master the Etp Model, they should at least sharpen their skills in Statistics 101.
http://www.thehillsgroup.org/
Plantagenet on Thu, 7th Apr 2016 5:52 pm
Yes, we’re making slow progress towards working through the current oil glut. However, the 56,000 bbl/day decrease in US oil production is more than offset by the 500,000 bbls of additional oil that Iran is now exporting.
Cheers!
observerbrb on Thu, 7th Apr 2016 6:47 pm
Plantaglut, you will end up drowning in your own glut…
Best Regards
makati1 on Thu, 7th Apr 2016 7:56 pm
Goldman Sucks is a multi-tentacled leech on humanity. Nothing it says is to be believed.
Dave thompson on Fri, 8th Apr 2016 6:33 am
Plantglut LOL
Kenz300 on Fri, 8th Apr 2016 8:24 am
Canadian tar sands producers are the high cost producers………. deep pockets may keep them around a while longer…….
shortonoil on Fri, 8th Apr 2016 12:13 pm
“Canadian tar sands producers are the high cost producers………. deep pockets may keep them around a while longer…….”
Petroleum production is such an integral part of any economy that there is no way that any State can sacrifice it without inciting huge political repercussions. For major oil exporters, like Canada, that is especially true. After petroleum production passed its energy half way point in 2012 we stated that to continue petroleum production the economy would need to enter a cannilibazation stage. Fixed assets accumulated previously would need to be consumed to support oil production. That would result in additional world debt accumulation of $39 trillion over the next decade.
Canada will fund the oil sands, the US will fund shale, and the Saudis will fund Aramco. They will continue to do so until the population has been reduced to paunchy. You can’t run a modern civilization, or military machine without oil!
http://www.thehillsgroup.org/
bonnielass on Fri, 8th Apr 2016 12:36 pm
So we have at least a decade of BAU left shortonoil, phew, I’m gonna dig in to my 50 year supply of pot noodle early!
shortonoil on Fri, 8th Apr 2016 12:55 pm
“So we have at least a decade of BAU left shortonoil, phew, I’m gonna dig in to my 50 year supply of pot noodle early!”
We have a decade of declining BAU that will be punctuated by one crisis after another! You will be living in “interesting times”.