Goldman Sachs warns of 2018 oil glut amid optimism over OPEC cut extension - CNBC
|Goldman Sachs analysts wrote in a report published on late-Monday, increased hopes of an extension of the OPEC oil output cut deal are underpinning oil prices, but there are risks for a renewed surplus later next year, as reported by CNBC.
Key Quotes:
"A nine-month extension would normalize OECD inventories by early 2018, in our view, but we see risks for a renewed surplus later next year if OPEC and Russia's production rises to their expanding capacity and shale grows at an unbridled rate."
"Costs will also play a role in setting shale's growth path but we do not forecast sufficient inflation at this point to achieve the required slowdown next year."
"In the current environment, we believe that the largest imbalance is the potential for a large surplus in 2018, leaving low deferred prices to resolve this credible threat. Low-cost producers selling their output in the spot market should further be incentivized to reduce inventories, to generate the backwardation linking spot oil prices near current levels and low deferred oil prices."
"Such a ramp-up in OPEC and Russia production would occur in the face of still rising non-OPEC production outside of US shale, with legacy projects started through 2014 still coming online in Brazil, Canada and the North Sea in particular."
"Achieving this will be difficult, but we see templates in both OPEC's modus operandi of the 1990s of managed but flagged growth and the rationalization of shale growth in U.S. gas, both with backwardation."
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.