Just what everyone has been waiting for!
The latest thoughts from Goldman Sachs’ energy gurus on the most recent commodity mega-slide.
And don’t forget: they did predict it.
First… what they think caused it:
Brent crude oil prices plummeted yesterday (May 5), falling $10.39/bbl to $110.80/bbl as of the NYMEX close, extending the declines of the past three days. In our view, this sharp decline resulted from prices pushing ahead of fundamentals in recent weeks, leaving them vulnerable to a substantial correction. We believe the catalysts for the sell-off were a string of disappointing economic data releases and the DOE statistics published on May 4.
Second… what they think will happen next:
The sell-off yesterday (May 5) has likely removed a large portion of the risk premium that we believe has been embedded in oil prices, which could suggest further downside may be limited from here. However, we remain wary of potential further downside should economic data releases in coming days continue to disappoint, with the focus now turning to today’s (May 6) Non-farm payroll report in the United States.
Third… why they think it’s still ultimately a bull market:
We continue to see fundamentals tightening over the course of this year, likely pushing prices back to recent highs by next year It is nevertheless important to reiterate that while we saw recent prices as having risen above the levels consistent with underlying near-term supplydemand fundamentals, we continue to believe that the oil supply-demand fundamentals will tighten further over the course of this year, and likely reach critically tight levels by early next year should Libyan oil supplies remain off the market. Consequently, it is important to emphasize that even as oil prices are pulling back from their recent highs, we expect them to return to or surpass the recent highs by next year.
Best to be wary for now then.