Americas News
Crude Ends 12 Day Price Slump as Goldman Predicts a Return to Higher Prices
It's unclear if crude can avoid weekly losses, but on Wednesday at least it finally ended a 12 day losing streak with a 1 percent rebound for the U.S. benchmark, buoyed by the expectation that the Organization of the Petroleum Exporting Countries (OPEC) will agree next month to cut output to avoid what is perceived to be an impending global glut.
West Texas Intermediate settled up 56 cents to $56.25 per barrel compared to falling 7 percent to a one-year low on Tuesday; Brent climbed 51 cents to $65.08 per barrel after plunging 6 percent to settle at an eight-month low in the previous session.
Of course, it remains to be seen if both benchmarks will consolidate these modest gains in the days ahead, especially given the numerous factors pressuring prices, including a massive build up in production from the U.S. (which will reportedly climb to over 12 million barrels per day in the first half of 2019), Russia, and other nations, and various reports predicting a waning of demand globally.
Jim Ritterbusch, president of Ritterbusch and Associates, said in a note, "This market is attempting to find a price bottom following an unprecedented 12 consecutive days of decline.
"Although the supply surplus is still relatively modest, the market is focusing on the dynamic of expansion in the overhang that will need to show signs of reversal before a price bottom can be established."
It's also unclear if OPEC's proposed output cuts - assuming they will be agreed upon when the cartel meets next month in Vienna - will effectively mitigate production increases from other countries; however, Goldman Sachs believes stronger prices lie ahead for crude.
Jeff Currie, head of commodity research at Goldman Sachs, told CNBC that concerns about deteriorating demand for oil are "overblown" and that the rapid decline of crude prices has been driven by momentum trading, in which traders buy or sell assets as the price moves decisively higher or lower.
He added that rising volatility in oil markets will soon discourage momentum traders: "You take away the momentum players, then you need the physical catalyst; what's the physical catalyst? OPEC."
Confident that the cartel will throttle back output, Currie concluded that the current price environment will end: "Historically you bounce right back to where you were before: our target for first quarter this year is $75 a barrel on Brent."
The problem with Goldman Sachs' analysis of late pertains to a lack of consistency: last month Bloomberg took time to compare statements from Currie and his colleagues on September 25 to those of October 2, and they revealed a 180 degree turnaround in outlooks on everything from the ability of other nations to make up for Iran's losses under the U.S. sanctions to the likelihood of prices escalating unchecked.
