Analysts at Goldman Sachs explain that the decline in long-term prices has instead been the largest driver of the spot sell-off, $3.50/bbl out of the $6/bbl move.
Key Quotes
“This decline extends the move started in October that has taken 5-year forward Brent prices from $62/bbl to $54/bbl, a faster fall towards our 2020 $53/bbl Brent forecast than we expected. We believe this reflects (1) greater visibility on future supply sources with rising shale and OPEC production expectations, (2) the growing predictability of future sources of production given the short cycle nature of OPEC (onshore) and shale drilling, and (3) the rest of the world competing to keep up. In particular, the integrated oil majors surprised during the past earnings season with an earlier-than-expected shift in focus to more future project sanctioning while governments have started to offer better fiscal terms to stimulate investment and compete for capital.”
“These deflationary forces leave us wary expecting a sharp rebound in long-term oil prices but do not derail our view that spot prices will rise above long-term oil prices in 3Q17.”
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