The outlook for oil investors continues to deteriorate in 2017, and Goldman Sachs now says WTI crude oil prices could be headed back below $40 per barrel for the first time in over a year.
Goldman Sachs analyst Damien Courvalin says the oil market needs to demonstrate some clear fundamental improvements or oil prices are destined to drift lower.
At this point, oil prices will only be stabilized by further production cuts from the OPEC or a consistent decline in U.S. crude oil stockpiles and rig counts, Courvalin says. “A failure for these shifts to materialize soon could push prices below $40 per barrel as the market tests OPEC’s and shale’s reaction functions,” he says in a report published Tuesday.
Oil investors were optimistic that the global market would stabilize in 2017 after OPEC announced a historic 1.2 million barrels-per-day production cut back in November. OPEC agreed to extend the production cut by nine months in May. But rising production from exempt OPEC members Nigeria and Libya, as well as non-OPEC producers such as the U.S., has offset much of the potential benefits of the OPEC cuts.
OPEC needs to make an aggressive move if it wants to keep prices above $40, Courvalin says. “We continue to believe that there is another opportunity for OPEC to increase the cuts, but that this should be done in a shock-and-awe manner, with little public announcement,” he says.
Goldman isn’t the only Wall Street firm growing increasingly skeptical of the oil market recovery. Earlier this month, Bernstein cut its 2018 oil price forecast from $70 to $50. The firm now predicts oil prices won’t recover to $70 until 2021.
Bernstein also recently downgraded oil and gas exploration and production stocks Devon Energy Corp. (ticker: DVN) and ConocoPhillips Co. (COP) from “outperform” to “market perform,” citing concerns over slumping oil prices.
Last week, RBC Capital downgraded Exxon Mobil Corp. (XOM) from “outperform” to “sector perform” and Chevron Corp. (CVX) from “sector perform” to “underperform.”
The struggling oil market has dragged…
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