The Strategist

Contradictions Between OPEC and Goldman Sachs Forecasts on Oil

10/12/2015 - 18:14

The oil market will come to a more balanced state in 2016. This statement was made at the Oil and Gas Conference in Kuwait by OPEC Secretary General Abdalla Salem El-Badri.

Steve Jurvetson
Steve Jurvetson
He believes that the gap between supply and demand will have disappeared already by the III quarter of next year. Now, there is a slowdown in production outside OPEC, whilst the demand for the commodity continues to grow. This dynamic is going to be a major stabilizing factor. In addition, many mining companies have cut investment by 20% due to the low oil prices and this may lead to a shortage of supply in the future.

Nevertheless, Al-Badri also acknowledged that "the market is oversaturated," and noted that stability is of a paramount importance for the oil market, which is experiencing "an extremely difficult time."

He also said that the fundamentals do not match the 60% fall in prices we saw last year. According to the secretary general of OPEC, oil demand will grow from the current 93 million barrels per day to 110 million barrels per day before 2040.  

-    $ 10 trillion of investment will be required to cover this demand, - said al-Badri.

Qatar's Energy Minister Mohammed bin Saleh Al-Sada, who is now the president of OPEC, also spoke on Sunday. He said that now, the market sees signals to rise in oil prices in the next year.

Mohammed bin Saleh Al-Sada also noted a slowdown in production outside OPEC, and is waiting for zero or negative growth next year.

Note also that a meeting of the largest oil-producing countries, both within and outside OPEC, will be held on October 21. Many experts share the opinion that the attendees can decide on the coordinated production cuts.

It also should be noted that last week, oil futures added about 10%. Prices finally got out of the range in which they stood the whole of September. Yet, on Friday, traders decided to fix profits, so Brent has stopped at level of $ 54.

In the middle of last week, the market participants were surprised by the sudden increase in production in the US, but on Thursday the quotes growth continued, but on Friday the information about the next reduction of the number of working rigs has been completely ignored. Number of drilling fell to 605 units – the minimum since 2010. It should be noted that the decline has been observed for the sixth consecutive week.

Meanwhile, Goldman Sachs Bank experts continue to predict a drop in oil prices to $ 20 per barrel. The current growth, in their opinion, has no fundamental basis, and is linked with the overall demand for risky assets on the back of weak data on the US economy.

It is difficult to argue as the correlation of assets and stock of oil has been too obvious in recent years. At the same time, the bank is known for its reverse forecasts. The most interesting point is that after Goldman Sachs published its previous forecast of the fall in oil prices to $ 20 in late August, the costs soared by almost 30% just in three days, showing record growth in 25 years. So now, while prices are rising rapidly, the bank’s experts are still predicting a collapse.