Monday, October 27, 2014

Oil: Goldman Lowers Forecast, Brent and WTI Both Down

Following up on Izabella Kaminska's Oct. 21 post "Oil Sell-off, the Goldman View (XLE; ERY)", which we took as an opportunity to inveigh* against jumping wholeheartedly back into the oil & gas stocks.
Brent $85.43 down 70 cents, WTI $80.50 down $0.51
From FT Alphaville:

Goldman’s new improved view on the oil sell-off
Earlier this month Goldman Sachs put out a note arguing that whilst their overall view was still bearish, the oil price sell-off thus far had been too much too soon.

The spot market fundamentals, they noted, were in balance — meaning that if anything was driving a “change” in demand it was curve repositioning, mostly by overly anxious speculators who had decided an exit was warranted despite the balanced fundamentals.
This, however, is no longer Goldman’s view.

As of Monday, the new Goldman rhetoric on oil goes as follows:
While large shifts in positioning precipitated a sell-off in oil prices that far exceeded the actual weakening in fundamentals, our confidence in a 2015 oversupplied global oil market has increased. As a result, we are bringing forward our medium-term bearish oil outlook. We now forecast that prices will need to decline further in 2015 as (1) accelerating non-OPEC production growth outside North America will outpace demand growth, leaving the oil market oversupplied, (2) the scale and sustainability of US shale oil production is driving the global cost curve lower and sustaining cost deflation, and (3) OPEC will no longer act as the first-mover swing producer and that US shale oil output will be called upon to fill this role.
I.e. the price sell off has not been too much too soon, and more like, ooops, perhaps speculators were right to pull out early after all....MUCH MORE
*We are seeing a lot of recommendations to buy hydrocarbon companies and want to note:

It's Too Early
More to come.
Energy Select Sector SPDR ETF (XLE) Friday close $85.60. ERY (Direxion Daily Energy Bear 3X ETF) Friday close $18.65.
Oct. 21 closes $85.96 and $18.54 respectively.
It is still too early, meaning there should still be some profitability to be found in the ERY.

"WTI Crude Slides Below $81"