Goldman Sachs "New Oil Order" - slash their Brent forecast to $30 / barrel
Goldman Sachs cutting 2Q and 3020 Brent price forecasts to $30/bbl with possible dips in prices to operational stress levels and well-head cash costs near $20/bbl.
This follows the weekend news:
- Saudi Arabia has slashed its oil price for all crude
- Saudi Arabia plans to increase oil output next month, well above 10m barrels a day
- The mother-of-all oil market busts is here: Talk of a 28% drop at the open
GS, in brief:
- OPEC and Russia oil price war unequivocally started this weekend when Saudi Arabia aggressively cut the relative price at which it sells its crude by the most in at least 20 years
- This completely changes the outlook for the oil and gas markets, in our view, and brings back the playbook of the New Oil Order, with low cost producers increasing supply from their spare capacity to force higher cost producers to reduce output.
- the prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus.
- This is the equivalent of 2009 Q1 1009 demand shock amid a 2015Q2 OPEC production surge for a likely 2016 Q1 price outcome. As a result, we are cutting our 2Q and 3020 Brent price forecasts to $30/bbl with possible dips in prices to operational stress levels and well-head cash costs near $20/bbl.
- we can't rule out an OPEC+ deal in coming months
- we also believe that this agreement was inherently imbalanced and its production cuts economically unfounded
- As such, we base case for now that no such deal occurs, with any response only likely at sharply lower prices anyways. In fact, we expect this Revenge of the New Oil Order to be swifter than its first foray given the already distressed state of the shale industry, likely reducing the likelihood of another quick policy reversal.