Goldman: Weak Opec will mean lower oil prices

Caitlin Morrison
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OIL PRICES will continue to decline in 2015, according to analysts form Goldman Sachs, who have also stated that the Organisation of the Petroleum Exporting Countries (Opec) has lost its pricing power.

The investment bank has lowered its price forecasts for brent crude oil from $100 a barrel to $85 a barrel for the first quarter and second half of 2015. Global oversupply is expected to be at its largest in the second quarter of next year, and the benchmark price could drop to as low as $80 a barrel at that time.

Forecasts for 2016 and the long term put oil back up at $90 a barrel. Forecasts for the US benchmark price WTI were also slashed, going from $90 a barrel to $75 for the first quarter of 2015.

The Goldman analysts warned that a decline in oil prices was needed to reflect the required slowing of US production growth.

And according to the research, pricing dynamics in the oil market have moved away from Opec. With US shale production currently much higher than Opec production, Saudi Arabia “no longer has the ability to push prices lower than the production costs of US shale”, the analysts say, as this would only accommodate further US production while reducing Saudi profits.

Meanwhile, Malcolm Graham-Wood, analyst at HydroCarbon Capital, said Goldman’s forecasts were now “creeping down to the land of the living” and commented: “Buyers are holding off safe in the knowledge that there is ample supply and the market lacks clarity. That will remain the case until the Opec meeting.”

Brent crude oil fell slightly below $85 a barrel during trading yesterday after Goldman cut its forecast, but recovered to just above $85 late last night. Opec will meet on 27 November, but a number of the swing producers within the organisation, including Saudi Arabia and Iran, have stated they will not lower production.

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