"Extremely Attractive" Crude is Set For a Price Rebound

Goldman, Barclays think the volatility plaguing the crude market will abate soon. File Image / Pixabay

The latest sure thing in the most unsure market of crude, according to a few analysts, is a rebound for oil prices, and their confidence is based largely on optimism over the outcome of upcoming industry events as well as other factors.

For example, Goldman Sachs on Monday speculated that "Given the size of dislocations in commodity pricing relative to fundamentals with oil now having joined metals in pricing below cost support, we believe commodities offer an extremely attractive entry point for longs in oil, gold and base."

Goldman, which has gained a reputation in media circles for contradicting its own forecasts, went on to express optimism about the G-20 summit in Argentina, stating, "Many of the political uncertainties weighing on commodity markets have a significant chance of being addressed in Buenos Aires; this includes some improvement on the China-U.S. relationship and like in the 2016 G-20 meetings, some greater clarity on a potential OPEC cut" - a reference to the widespread expectation that the Organization of the Petroleum Exporting Countries will decide to lower production when it meets in Vienna next month, thereby warding off what experts believe is a mounting global glut.

If OPEC announces a return to cuts, Goldman believes Brent crude prices will rebound.

In a similarly optimistic vein, Michael Cohen, head of energy commodities research at Barclays, told Bloomberg television that, "There's a lot of things going on here at the same time, both fundamental and technical....frankly, the fundamentals never justified oil at $80 or $85 in the first place....at the same time these [U.S. president Donald Trump] tweets have given market participants concern that OPEC is not going to cut production at its meeting next week in Vienna, and the other thing that I think is going on here of course is the very strong rally in natural gas.

"So where do we go from here? We think prices will rebound as we move into December and into next year; of course if OPEC does not cut or is not able to manage expectations, that's a key risk to the price, and I think as we move into the first quarter of next year typically we do see demand start to pick up a little bit."

Goldman believes it's vitally important that both Saudi Arabia and Russia convince Trump at the G-20 that production cuts are necessary, because "Oil prices at $50 a barrel dig into the U.S. industry's cost structure: it's not good for the U.S. either at these prices," Jeff Currie, head of commodities research, told CNBC on Monday.

Currie added that the best price for everyone is in the $65 to $70 range: "When you're in that level it's not too high and damaging the consumer, but at the same time, it creates a stable environment for the industry."

Of course, for anyone who has studied Trump's long history of deal making, they know his seemingly erratic behaviour as president is in fact a classic business strategy of loudly shooting for the moon, secretly knowing that the resulting tumolt will result in his real expectation of achieving somewhat less - such as $65-$70 oil.

Some pundits point to Iran as an example of Trump's maneuvering: with the unwavering goal of giving American motorists a break at the pump, Trump bragged that his sanctions against the Islamic republic would reduce their crude exports to zero; and before he ultimately issued sanction waivers to eight different countries, Saudi Arabia and other countries were worried enough to boost production to record levels - which in turn caused the steady plummet of oil prices that many think are here to stay.