Wednesday, May 20, 2015

"Why Is Oil Price So Stubbornly High, Asks Goldman Sachs"

July WTI $58.84 up 85 cents.
From Barron's Asia Stocks to Watch:
Goldman Sachs has a problem with the oil rally.

In a morning note, the oil bear tried to explain why we are seeing a recent rally even though its fundamentals are bad. Analysts Damien Courvalin and Jeffrey Currie talked about seasonality and the dollar:
Calling the timing for prices to decline is challenging as we approach a period of seasonally stronger demand and potential China SPR fill. Further, the oil rally has occurred along with other macro reversals such as a rising Euro and a surprisingly large intraday inverse correlation between oil and the dollar since early April.
So the recent oil rally is driven by the dollar. On Tuesday, WTI fell 3.65% to $57.26 while the dollar index rose 1.13% to 95.29 after the European Central Bank‘s Benoit Coeure said that asset purchases would be accelerated in May and June before the Europeans go on vacation.

But Goldman Sachs believes that the price of oil will go back to the first-quarter low of $48 per barrel (Brent) by this fall. Goldman has found that U.S. shale gas production cost has now fallen to $60 per barrel. As long as WTI remains near $60 per barrel, there is incentive for US producers to ramp up production and venture capital to pump money into the industry:...MORE
OilPrice's story starts with the headline:
Goldman Sachs Predicting $45 Oil By October