Goldman Sachs Says Only Further Outages and Disruptions Will Cause Oil Prices to Escalate

Damien Courvalin says "the rationalization of the oil market's surplus remains nascent at best."

Goldman Sachs Friday maintained its three-month $49 per barrel forecast by stating that the only way for prices to move significantly beyond current levels is for more unplanned outages and disruptions to occur.

In explaining his position, Damien Courvalin, head of energy research and senior commodity strategist for Goldman, said, "We .. continue to see further evidence that outside of these disruptions, the rationalization of the oil market's surplus remains nascent at best."

While the Canadian wildfires that severely curbed output in May and June are now contained to the point where producers have moved crews back into previously evacuated regions, Courvalin is currently monitoring Nigeria as a likely source of further disruptions due to militant attacks on production facilities.

He noted of recent attempts to make peace with the militants, "Some negotiations with the government started on June 6, the same day a new rebel group surfaced; with oil majors evacuating personnel and no timeline for repairs, we assume that the loss of production will persist although an agreement could lead to a sharp recovery."

Another source for major outages that could drive prices higher is Venezuela, although Courvalin said that "third party data point to only slight declines of 85 kb/d year-to-date through May……..for now, we expect that declines will moderate later this year, although production will still be down 175 kb/d yoy. "

However, he added that "A further deterioration in the country's finances or political instability present risks of larger production declines than we assume which would be a catalyst for higher prices."

Another respected financial institution expressed a far stronger view about Venezuela's volatility: Helima Croft, global head of commodity strategy for RBC Capital Markets, stated that the country "is the next shoe to potentially drop; that's the most important country to watch right now."

She went on to describe the Venezuelan economy as a "humanitarian catastrophe" that "seems to be going from worse to worse" and also stressed that "oil production, when we look at the main numbers, was down 120,000 barrels: that's the largest month-by-month drop since 2003."

In April, RBC included Venezuela in a list of five countries - the others are Algeria, Iraq, Libya, and Nigeria - whose economies it believes will collapse if the oil market doesn't soon stabilize.