Goldman Sachs downgrades its oil price forecast

Analysts from investment bank Goldman Sachs have slashed its projection for oil prices in the coming quarter, indicating a three-month average of $47.50 per barrel for WTI crude. The bank previously predicted oil prices averaging $55.

A research note was published where analysts indicated:

“[The] fast ramp-up in shale drilling and the unexpectedly large rebound in Libya/Nigeria production are on track to slow the 2017 stock draws.”

US shale drillers are not limited by production quotas, and rig counts have been consistently increasing this year. Libya and Nigeria are both OPEC members, but due to recent issues with maintaining oil production, they were exempted from cuts in order to allow them to benefit from whatever oil they could produce. Both these countries have experienced a larger rebound than many expected, however, and the Goldman Sachs analysts warn that all this could prevent inventories from normalising before the OPEC cuts end next year.

Oil majors such as ExxonMobil, the maker of industrial lubricants like Mobil Glygoyle 30, and Royal Dutch Shell, the producer of Shell Tellus S2 M 32, have already reorganised many of their operations to cope with lower prices, so the downgrade is unlikely to cause panic.

Despite the downgrade, the bank points to some more positive aspects and says it remains:

“…cyclically bullish within a structurally bearish framework.”

Analysts note that demand is high and inventories are declining. They also point to the possibility that rising costs could dampen the enthusiasm of US producers, as well as the potential for OPEC to deepen its cuts.