HOUSTON — U.S. benchmark crude prices will fall to $70 per barrel next year, according to a new forecast published by Goldman Sachs Monday, suggesting that the recent and pronounced slide in oil prices isn’t a temporary phenomenon.
The decline is due to oil production growing at a faster pace than demand, leading to global oil market that’s oversupplied. The report called the change inevitable, noting that “getting to a point where the market shifted back into surplus was only a matter of time.”
The report predicts that West Texas Intermediate will fall to $70 per barrel in the second quarter of 2015, while Brent, the international crude standard, will fall to $80 per barrel during the same period.
WTI was trading at $81.02 per barrel Monday afternoon, while Brent was at $85.79.
Oil prices will be at their lowest points of 2015 during the second quarter. During the rest of 2015, the study predicts $75 WTI for the first quarter and second half of 2015 and $85 Brent.
In the longer-term — 2016 and beyond — it forecasts WTI at $80 and Brent at $90. That slight rebound of prices will occur when OPEC countries cuts their own production, once it’s clear that a slowdown in U.S. production growth has slowed as well.
Until recently, U.S. producers have benefited from oil inventories that remained relatively stable since mid-2012, as their shale production has coincided with disruptions among OPEC suppliers. At the same time, they’ve enjoyed growing global demand for crude.
Today, Goldman Sachs writes, that equilibrium is unraveling. U.S. production is strong but OPEC disruptions that has once faced Libya, Iran and Nigeria have eased. Global economic growth — and thus, demand for crude oil — has slowed.
As OPEC production has bounced back, core OPEC countries like Saudi Arabia aren’t expected to slow their output to keep prices high, as they might have in the past.
Still, the authors noted that the forecast could certainly change, in part because of questions about the price points at which various shale operations become unprofitable.
“The uncertainty around the required price to slowdown US shale oil production growth is a key risk to our updated price forecast,” Goldman Sachs wrote.
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