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Goldman Sachs anticipates return to long-term oil price stability


Goldman Sachs has maintained its base case for oil prices at $50 per barrel, saying it anticipates a return to stable long-term oil prices.

The bank said in an outlook note that confidence in long-term oil prices has increased due to improvements in technology and therefore the costs involved with shale extraction. Price fluctuations are now likely to be within the realm of 10-20 percent, rather than the quadrupling noted when new technology methods were being trialled, the note said.

“This higher level of certainty in the resource base for future supply is what helps drive our confidence,” the note said.

Goldman’s long-term WTI price of $50 per barrel remains slightly lower than its 5-year estimate of $54 per barrel, however, the bank said that it anticipates a positive outlook going forward – one not seen for almost 15 years.

“We believe we are going back to an environment similar to pre-2003, a period characterized by stable long-term oil prices and low oil-dollar correlation,” the research note said.

The comments refer to the 1990s and early millennium, when commodity returns were generated from carry – rising prices of futures contracts – rather than direct price appreciation.

“The last time the market had this level of certainty around long-term oil prices was before the rise in long-dated oil prices in 2003, nearly 15 years ago,” it said.

Goldman’s comment on “low oil-dollar correlation” refers to the historical link. When the dollar has risen in value, oil prices would fallen – and vice versa.

The bank has also maintained its overweight position for the commodities sector as a whole. It is anticipating returns of five percent over the next three months and four percent over a 12 month time horizon.

“The strategic case for commodities remains solid”, Goldman said, downplaying recent volatility.

The bank has upheld its near-term target for gold at $1,200/toz and its 12 month target at 1,250/toz.

Reduced oil imports from OPEC countries, growing Chinese demand for metals and positive macroeconomic data forecasts all suggest that the “base case logic remains intact,” the bank said of the sector.

The comments follow a continued hunt for ‘safe-haven’ assets amid geopolitical uncertainty. Commodities have seen increased demand, with gold in particular trading up since the start of the year.

However, Nicholas Melhuish, head of Global Equities, Amundi, cautioned that these gains could be short-lived.

“Commodity prices look quite rich,” he told CNBC Wednesday, “that’s not a sector we’re exposed to.

“The spot (gold) prices look relatively elevated and I think therefore there is potentially some downside to these stocks.”


7 Comments on "Goldman Sachs anticipates return to long-term oil price stability"

  1. Apneaman on Wed, 12th Apr 2017 8:55 pm 

    How quick they forget.

    Goldman Sachs Finally Admits it Defrauded Investors During the Financial Crisis

    Goldman Sachs to pay $5bn for its role in the 2008 financial crisis

    The settlement holds the bank accountable for its ‘serious misconduct’ in falsely assuring investors that securities it sold were backed by sound mortgages

  2. Anonymouse on Wed, 12th Apr 2017 10:22 pm 

    You know why GS defruaded investors?

    Two reasons basically

    One, because they could.

    Two, outright fraud, is far easier than trying to actually invest your clients money in stable and legitimate investment vehicles. Far simpler to just take suckers, I mean investors money, launder it a little, then declare it a write-off.

  3. deadlykillerbeaz on Wed, 12th Apr 2017 10:31 pm 

    Long term oil price stability translates to nobody has any money.

    Translates to nobody wants to spend money on gas, electricity is better. The commute takes no time at all.

    The bread and butter is when you plant, not when you harvest. The harvest is the gravy.

  4. Sissyfuss on Wed, 12th Apr 2017 10:48 pm 

    Well at least we got rid of a lot of those GS banksters by installing them into the Trump adminstration.

  5. Cloggie on Thu, 13th Apr 2017 2:28 am 

    GS is probably right. Shale technology has meanwhile been perfected and can now be used worldwide, apart from a few silly countries in Western continental Europe. But if le Pen wins, expect the EU program of fossil-fuel-free before 2050, to be shelved, because there will be no EU to carry it out. Le Pen, like most right-wingers, is against leftist éolienne baloney. Free pass for nuclear energy.

    Green-right is a non-existing political position, promoted only by a handful of internet loons.

    Meanwhile, the EU does really everything to commit suicide. The club was build by giants like de Gaulle, Adenauer, Schmidt, Giscard, Kohl and Mitterrand, is now rapidly destroyed from within by gnomes like Merkel and Juncker and Timmermans, by insisting that their little bureaucracy should prevail by attempting to destroy nationalism through mass migration from the third world. Leading the charge is the Dutch criminal Frans Timmermans, whose Labour party was decimated in the last national elections, but nevertheless continuous his Europe-destroying practices:
    (Timmermans threatening Hungary after Orban wanted to close down the subversive Soros university)
    (Timmermans threatening Poland and Hungary for refusing to take in hundreds of thousands of third world invaders)

  6. rockman on Thu, 13th Apr 2017 9:26 am 

    Cloggie – “…long-term oil prices has increased due to improvements in technology and therefore the costs involved with shale extraction.” The cost per foot of a drilled/frac’d well has declined due to competition as demand for those services fell. The same drill rig used in the Eagle Ford Shale that that cost $24,000/day several years ago is drilling EFS wells today for $14,000/day. The tech used today is identical to that used when costs peaked several years. In fact it’s the same actual equipment being used now. And as demand for those services increase so will the cost.

    And productivity of new wells has improved because the poorer prospects that could be justified when oil was $90/bbl aren’t being drilled today. Yes: for what it’s worth: the EROEI of wells drilled today has INCREASED above what it was a few years ago. And no: new wells do not require less energy to drill.

  7. shortonoil on Thu, 13th Apr 2017 2:25 pm 

    As they have been doing for the last 13 years, refinery yields are going down. The price of finished products must therefore go up, or the price of crude must go down; or both. Refineries have not yet begun to see themselves as welfare providers. They are planning on having someone pay for that additional crude that they are using:

    As finished product prices go up demand slows which places more downward pressure on crude. Stable is hardly a fitting adjective for this situation.

    “We believe we are going back to an environment similar to pre-2003, a period characterized by stable long-term oil prices and low oil-dollar correlation,” the research note said.”

    Apparently they are cutting back on research! The EIA has been publishing this stuff since 2005.

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