Goldman Sachs’ commodities team headed by Jeffrey Currie continues to use the unprecedented “financial crisis” as a get-out-clause for why crude prices will likely miss the team’s previously bullish end-of-year forecast of around $149 per barrel.
In fact, the team says that further downward revisions by GS economists for a number of emerging economies including Russia and India are leading them to reduce 2009 global oil demand estimates by 200 thousand b/d to 300 thousand b/d growth next year.
In their latest post-Opec note they write:
The 1.5 million b/d cut announced by OPEC clearly moves in the direction of tighter fundamentals, but the ongoing financial turmoil and its economic implications that are causing a generalized sell-off across assets will likely continue to put downward pressure on oil and commodities prices in the near term (see Exhibit 1).
But, the team adds, full implementation of Opec’s announced cut would bring production levels to those reached in mid-2007, and if achieved, could go a long way to rebalancing the market. Under normal credit conditions they would expect an 8-9 per cent front-to-back contango to materialise versus the more pronounced 15 per cent current figure. Essentially, that under normal circumstances Opec cuts would see the forward curve flaten due to tightening supplies at the front-end. However, the get-out-clause persists:
…if the current dislocation between the shape of the forward curve and inventories persists along with continued constrained credit conditions, the contango could worsen even further from current levels.
In the interim, Goldman states – quite obviously – that you can certainly expect a narrowing of heavy/light differentials (the spread between heavy sulphur crudes produced by Opec and the light sweet superior crudes mainly produced by non-Opec members).
Most interestingly though, the commodities team says it will be leaving its own trades open because volatility will likely provide a better exit opportunity.
Although we maintain that continued weak oil demand exacerbated by constrained credit conditions will contribute to soften near-term fundamentals in the next few months – keeping WTI timespreads and gasoline cracks under pressure – we believe that the expected high volatility will provide a better exit point to our trades and are therefore leaving open our WTI long-dated timespread and gasoline crack trading recommendations.
Essentially, they’re still bullish for the longer term (largely because they’re still pretty long).
Note below how their previous recommendations are currently faring:
Goldman Sachs cuts oil price forecasts – FT.com