Brent crude futures extended declines to below $86 a barrel on Monday after Goldman Sachs cut its price forecasts for the contract and for U.S. oil by $15 in the first quarter of next year.
The U.S. investment bank said in a research note on Sunday that it had cut its forecast for West Texas Intermediate to $75 a barrel from $90, and its prediction for Brent to $85 from $100, with rising production in non-OPEC countries outside North America expected to outstrip demand.
The bank's analysts expect WTI to fall as low as $70 a barrel and Brent to $80 in the second quarter of 2015, when it expects oversupply to be most pronounced.
London Brent crude for December delivery was trading 32 cents lower at $85.81 a barrel by 0152 GMT, after settling down 70 cents on Friday. The front-month contract dropped to below $83 on Oct. 16, its lowest in almost four years.
Oil prices at multi-year lows may be just the beginning, with some analysts forecasting "black gold" may permanently lose its luster.
"We have entered a new era in world oil," Dan Yergin, vice chairman at IHS and Pulitzer Prize winning author of The Prize: the Epic Quest for Oil, Money and Power, told CNBC. "The dominant thing is this growth in U.S. supply," he said, noting production there is up 80 percent since 2008 for an output greater than 11 out of 12 OPEC countries.
"That's happened, combined with what the head of the IMF has called the 'new mediocre' in the world economy. Suddenly, this sense is that things are weaker and then out of the blue, this failed state called Libya, which was producing almost no oil, suddenly puts a million barrels of oil into the market," he added.
WTI prices were around $80.85 a barrel in early Asia trade Monday, hovering near lows last seen in 2012, while Brent was trading around $85.73 a barrel, not terribly far from its 2010 lows, according to Reuters data.
Even with WTI prices around $80 a barrel, Yergin doesn't expect U.S. production will slow, although price levels below that might "see a lot of pain" among producers.
"It's unusual that we have this much risk in the world -- Russia, Ukraine, ISIS, North Africa, Nigeria -- and yet the price has gone down. That tells you how powerful - at least right now - supply and demand is," he said.
Others also expect long-term weakness in oil prices.
"We have greater confidence in the scale and sustainability of U.S. shale oil production. This implies that the global cost curve has shifted lower and that cost deflation is sustainable," Goldman Sachs said in a note dated Sunday.
In addition, "accelerating non-OPEC production growth outside North America will outpace demand growth, leaving the global oil market oversupplied," it said.
Goldman cut its WTI crude oil forecast to $75 a barrel for the first quarter and second half of next year, down from $90 previously, and lowered its Brent forecast to $85 a barrel from $100 previously. For the second quarter of 2015, when it expects global oversupply will be at its worst, it expects WTI at $70 a barrel and Brent at $80.
Oil prices at multi-year lows may be just the beginning, with some analysts forecasting "black gold" may permanently lose its luster.
"We have entered a new era in world oil," Dan Yergin, vice chairman at IHS and Pulitzer Prize winning author of The Prize: the Epic Quest for Oil, Money and Power, told CNBC. "The dominant thing is this growth in U.S. supply," he said, noting production there is up 80 percent since 2008 for an output greater than 11 out of 12 OPEC countries.
Read More Oil could slide further, but where's the bottom?
"That's happened, combined with what the head of the IMF has called the 'new mediocre' in the world economy. Suddenly, this sense is that things are weaker and then out of the blue, this failed state called Libya, which was producing almost no oil, suddenly puts a million barrels of oil into the market," he added. cta88 | iStock/360 | Getty Images
WTI prices were around $80.85 a barrel in early Asia trade Monday, hovering near lows last seen in 2012, while Brent was trading around $85.73 a barrel, not terribly far from its 2010 lows, according to Reuters data.
Even with WTI prices around $80 a barrel, Yergin doesn't expect U.S. production will slow, although price levels below that might "see a lot of pain" among producers.
Read More The price of oil is not where Russia would like it
"It's unusual that we have this much risk in the world -- Russia, Ukraine, ISIS, North Africa, Nigeria -- and yet the price has gone down. That tells you how powerful - at least right now - supply and demand is," he said.
Others also expect long-term weakness in oil prices.
"We have greater confidence in the scale and sustainability of U.S. shale oil production. This implies that the global cost curve has shifted lower and that cost deflation is sustainable," Goldman Sachs said in a note dated Sunday.
In addition, "accelerating non-OPEC production growth outside North America will outpace demand growth, leaving the global oil market oversupplied," it said.
Read More Oil drop another issue for the stock market
Goldman cut its WTI crude oil forecast to $75 a barrel for the first quarter and second half of next year, down from $90 previously, and lowered its Brent forecast to $85 a barrel from $100 previously. For the second quarter of 2015, when it expects global oversupply will be at its worst, it expects WTI at $70 a barrel and Brent at $80.
It expects fundamentals will stabilize in 2016, with U.S. production growth likely to slow and OPEC likely to make moderate production cuts, setting a 2016 and long-term forecast at $80 a barrel for WTI and $90 for Brent.
To be sure, IHS's Yergin noted that geopolitical risks could still wield a great deal of power over oil prices.
"If you have some other major political shock that interferes with things, that actually affects supply, things could turn around," Yergin said.
Goldman also sees some risks to its bearish view.
"A collapse in Libyan oil production would offset our expected first quarter of 2015 inventory build forecast, as Saudi and the rest of core-OPEC do not have enough spare capacity to fully absorb this hit," Goldman noted. It also cited some uncertainty about the price level that would be needed to get U.S. shale production growth to slow.
Libya may be facing civil war, with heavy fighting between the army and Islamist militias as two rival governments vie for power three years after long-time ruler Muammar Gaddafi was overthrown.
I think the current dip in prices is related to a "over-supply" intentionally created by OPEC. It is necessary to re-balance the over production of shale gas. Also I reckon that China consumption drop is temporary. China is re-organizing themselves and will become strong again with urbanization and further population growth (young ones)!
Also unlike in 2008/9, where I personally gone through in my career, there is no euphoria in Oil price. In 2008 oil price peaked to usd150 a barrel and fundamental is weak, with so many speculation couple with irresponsible financing from the banks! The situation now is different!
I myself is in the O&G sector, and spoke to many veterans in the industry lately. 2015, 16 sunsetting, 2017 sun rise again. Projects of NOC and shallow water will continue but margins tight due to sentiments.
A few weeks ago Citi (NYSE:C) put out a report noting that the "full-cycle" costs (land, infrastructure, well drilling and operating costs) for many new shale plays is in the $70 to $80 range. That means that we are entering the area where some new shale plays will become unfeasible.
This has a bigger impact than just lower oil gas prices. Obviously, a lower gas price is good news. The bad news is the potential impact this could have on the other side of the ledger: jobs. The shale oil boom has been a significant help for the jobs market in the United States. A reduction in new drilling could have a significant impact on the booming energy industry.
Brent crude -- used as a benchmark for more than half the world’s oil -- has fallen 23% this year as global supplies rise amid the highest U.S. output in almost three decades.
Goldman Sachs Group Inc. cut its price forecast for the next year to US$85 a barrel ($108) from US$100, the bank said Oct. 26.
KrisEnergy is spending about US$30-US$35 to produce each barrel, Lorentz said.
The company, which completed a US$222 million initial public offering last year and counts private equity fund First Reserve Corp. as its largest investor, will spend about US$200 million annually to develop oil fields, Lorentz said.
China is on a buying spree in the global oil markets as prices slumber near the lowest in years.
The trading unit of state-run China National Petroleum Corp. has bought 36 cargos of crude oil in the open market so far in October, the largest purchase ever in a single month, Singapore traders familiar with the transactions said.
ReplyDeleteBrent crude futures extended declines to below $86 a barrel on Monday after Goldman Sachs cut its price forecasts for the contract and for U.S. oil by $15 in the first quarter of next year.
The U.S. investment bank said in a research note on Sunday that it had cut its forecast for West Texas Intermediate to $75 a barrel from $90, and its prediction for Brent to $85 from $100, with rising production in non-OPEC countries outside North America expected to outstrip demand.
The bank's analysts expect WTI to fall as low as $70 a barrel and Brent to $80 in the second quarter of 2015, when it expects oversupply to be most pronounced.
London Brent crude for December delivery was trading 32 cents lower at $85.81 a barrel by 0152 GMT, after settling down 70 cents on Friday. The front-month contract dropped to below $83 on Oct. 16, its lowest in almost four years.
Time to give back a bit :)
ReplyDeleteUncle winner for a long...
My poor sembcorp :(
Crude down. Sembcorp down slower.
DeleteSmall consolation
Down slower then must be careful not to catch the falling oil lhoo... maybe soon u can utilise the humongous 47% warchest you have
DeleteThe only tip I can give ...
ReplyDeleteCrude down. Kep down!
Crude up. Kep may NOT be up.
:-)
Are low oil prices here to stay?
ReplyDeleteLeslie Shaffer | Writer for CNBC.com
Oil prices at multi-year lows may be just the beginning, with some analysts forecasting "black gold" may permanently lose its luster.
"We have entered a new era in world oil," Dan Yergin, vice chairman at IHS and Pulitzer Prize winning author of The Prize: the Epic Quest for Oil, Money and Power, told CNBC. "The dominant thing is this growth in U.S. supply," he said, noting production there is up 80 percent since 2008 for an output greater than 11 out of 12 OPEC countries.
"That's happened, combined with what the head of the IMF has called the 'new mediocre' in the world economy. Suddenly, this sense is that things are weaker and then out of the blue, this failed state called Libya, which was producing almost no oil, suddenly puts a million barrels of oil into the market," he added.
ReplyDeleteWTI prices were around $80.85 a barrel in early Asia trade Monday, hovering near lows last seen in 2012, while Brent was trading around $85.73 a barrel, not terribly far from its 2010 lows, according to Reuters data.
Even with WTI prices around $80 a barrel, Yergin doesn't expect U.S. production will slow, although price levels below that might "see a lot of pain" among producers.
"It's unusual that we have this much risk in the world -- Russia, Ukraine, ISIS, North Africa, Nigeria -- and yet the price has gone down. That tells you how powerful - at least right now - supply and demand is," he said.
ReplyDeleteOthers also expect long-term weakness in oil prices.
"We have greater confidence in the scale and sustainability of U.S. shale oil production. This implies that the global cost curve has shifted lower and that cost deflation is sustainable," Goldman Sachs said in a note dated Sunday.
ReplyDeleteIn addition, "accelerating non-OPEC production growth outside North America will outpace demand growth, leaving the global oil market oversupplied," it said.
ReplyDeleteGoldman cut its WTI crude oil forecast to $75 a barrel for the first quarter and second half of next year, down from $90 previously, and lowered its Brent forecast to $85 a barrel from $100 previously. For the second quarter of 2015, when it expects global oversupply will be at its worst, it expects WTI at $70 a barrel and Brent at $80.
Oil prices at multi-year lows may be just the beginning, with some analysts forecasting "black gold" may permanently lose its luster.
"We have entered a new era in world oil," Dan Yergin, vice chairman at IHS and Pulitzer Prize winning author of The Prize: the Epic Quest for Oil, Money and Power, told CNBC. "The dominant thing is this growth in U.S. supply," he said, noting production there is up 80 percent since 2008 for an output greater than 11 out of 12 OPEC countries.
Read More Oil could slide further, but where's the bottom?
"That's happened, combined with what the head of the IMF has called the 'new mediocre' in the world economy. Suddenly, this sense is that things are weaker and then out of the blue, this failed state called Libya, which was producing almost no oil, suddenly puts a million barrels of oil into the market," he added.
cta88 | iStock/360 | Getty Images
WTI prices were around $80.85 a barrel in early Asia trade Monday, hovering near lows last seen in 2012, while Brent was trading around $85.73 a barrel, not terribly far from its 2010 lows, according to Reuters data.
Even with WTI prices around $80 a barrel, Yergin doesn't expect U.S. production will slow, although price levels below that might "see a lot of pain" among producers.
Read More The price of oil is not where Russia would like it
"It's unusual that we have this much risk in the world -- Russia, Ukraine, ISIS, North Africa, Nigeria -- and yet the price has gone down. That tells you how powerful - at least right now - supply and demand is," he said.
Others also expect long-term weakness in oil prices.
"We have greater confidence in the scale and sustainability of U.S. shale oil production. This implies that the global cost curve has shifted lower and that cost deflation is sustainable," Goldman Sachs said in a note dated Sunday.
In addition, "accelerating non-OPEC production growth outside North America will outpace demand growth, leaving the global oil market oversupplied," it said.
Read More Oil drop another issue for the stock market
Goldman cut its WTI crude oil forecast to $75 a barrel for the first quarter and second half of next year, down from $90 previously, and lowered its Brent forecast to $85 a barrel from $100 previously. For the second quarter of 2015, when it expects global oversupply will be at its worst, it expects WTI at $70 a barrel and Brent at $80.
It expects fundamentals will stabilize in 2016, with U.S. production growth likely to slow and OPEC likely to make moderate production cuts, setting a 2016 and long-term forecast at $80 a barrel for WTI and $90 for Brent.
To be sure, IHS's Yergin noted that geopolitical risks could still wield a great deal of power over oil prices.
"If you have some other major political shock that interferes with things, that actually affects supply, things could turn around," Yergin said.
Goldman also sees some risks to its bearish view.
"A collapse in Libyan oil production would offset our expected first quarter of 2015 inventory build forecast, as Saudi and the rest of core-OPEC do not have enough spare capacity to fully absorb this hit," Goldman noted. It also cited some uncertainty about the price level that would be needed to get U.S. shale production growth to slow.
Libya may be facing civil war, with heavy fighting between the army and Islamist militias as two rival governments vie for power three years after long-time ruler Muammar Gaddafi was overthrown.
Is the stock losing its shine ?
ReplyDelete"sunset industry"?
Cheem question.
Hi CW,
ReplyDeleteI think the current dip in prices is related to a "over-supply" intentionally created by OPEC. It is necessary to re-balance the over production of shale gas. Also I reckon that China consumption drop is temporary. China is re-organizing themselves and will become strong again with urbanization and further population growth (young ones)!
Also unlike in 2008/9, where I personally gone through in my career, there is no euphoria in Oil price. In 2008 oil price peaked to usd150 a barrel and fundamental is weak, with so many speculation couple with irresponsible financing from the banks! The situation now is different!
I myself is in the O&G sector, and spoke to many veterans in the industry lately. 2015, 16 sunsetting, 2017 sun rise again. Projects of NOC and shallow water will continue but margins tight due to sentiments.
Just my thoughts. I definitely can be wrong.
Rolf
Thank you for answering this cheem question from one reader.
DeleteA few weeks ago Citi (NYSE:C) put out a report noting that the "full-cycle" costs (land, infrastructure, well drilling and operating costs) for many new shale plays is in the $70 to $80 range. That means that we are entering the area where some new shale plays will become unfeasible.
ReplyDeleteThis has a bigger impact than just lower oil gas prices. Obviously, a lower gas price is good news. The bad news is the potential impact this could have on the other side of the ledger: jobs. The shale oil boom has been a significant help for the jobs market in the United States. A reduction in new drilling could have a significant impact on the booming energy industry.
Brent crude -- used as a benchmark for more than half the world’s oil -- has fallen 23% this year as global supplies rise amid the highest U.S. output in almost three decades.
ReplyDeleteGoldman Sachs Group Inc. cut its price forecast for the next year to US$85 a barrel ($108) from US$100, the bank said Oct. 26.
KrisEnergy is spending about US$30-US$35 to produce each barrel, Lorentz said.
The company, which completed a US$222 million initial public offering last year and counts private equity fund First Reserve Corp. as its largest investor, will spend about US$200 million annually to develop oil fields, Lorentz said.
China is on a buying spree in the global oil markets as prices slumber near the lowest in years.
ReplyDeleteThe trading unit of state-run China National Petroleum Corp. has bought 36 cargos of crude oil in the open market so far in October, the largest purchase ever in a single month, Singapore traders familiar with the transactions said.