Big Banc Split Corp T.BNK

Goldman Sachs prediction on oil

[pix4ddd]

A glut of crude oil may keep prices low for the next 15 years, according to Goldman Sachs.

There’s less than a 50 per cent chance that prices will drop to US$20 a barrel, most likely when refineries shut in October or March for maintenance, Jeffrey Currie, head of commodities research at the bank, said in an interview in Lake Louise, Alberta. Goldman’s long-term forecast for crude is at US$50 a barrel, he said.

The $20 comment comes from Goldman Sach’s published oil report headlined "Lower for even longer." The bank's commodities team slashed its forecast for average prices in 2016 to $45 per barrel from $57, but said the risks of a collapse to $20 were growing. Here's why.

• OPEC will pump even more oil in 2016, led by increases in Saudi Arabia, Iraq and Iran. Goldman Sachs believes the cartel's resolve to defend its market share has been strengthened in recent weeks. 

• Producers outside OPEC, including U.S. shale oil companies, are proving more resilient to lower prices than expected. That's because the cost of production is falling globally, because of greater efficiency and sharp declines in other commodity prices.

• Growth in global demand for oil will slow next year. That's largely due to China's economic slowdown, which will hurt other countries, particularly those that rely heavily on commodity exports.

  And there's another reason to believe prices could fall much further before the oil market achieves a better balance. The collapse in prices from around $100 per barrel last year helped shore up demand in 2015, but that factor will fade. "Not only is emerging market growth slowing, but the benefits from lower prices are most likely behind us, as our ... modeling shows that they typically last 9-12 months," Goldman Sachs noted. (CNNMoney 11Sept15)