The oil market is heading into a whole different era now that Saudi Arabia and Russia are squaring off in an all-out oil price war following Friday’s failed OPEC+ agreement—and US$20 Brent Crude is now a real possibility, Goldman Sachs said on Monday.
Oil prices plunged by 10 percent on Friday after OPEC and its Russia-led non-OPEC allies failed to agree on how to handle the depressed demand amid the coronavirus outbreak. The Saudis and OPEC insisted on a massive 1.5-million-bpd cut through end-2020, but Russia refused to continue ceding more ground and market share to U.S. shale with the OPEC+ production cut deal, which hadn’t materially moved oil prices higher, especially with the slump in demand due to the virus outbreak.
On Monday, oil prices collapsed by 30 percent early in the day before recouping some losses to trade 23 percent lower at 8:00 a.m. EDT, after the Saudis slashed prices for all their major markets and signaled a rise in production as of April.
“The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus,” Damien Courvalin, oil strategist at Goldman Sachs, wrote in a note to clients, as carried by Yahoo Finance.
The major demand shock from the coronavirus outbreak and the looming ‘pump-at-will’ policy will likely keep oil prices at very low levels, according to Goldman Sachs, which slashed its Brent Crude estimates to $30 a barrel in Q2 and Q3, “with possible dips in prices to operational stress levels and well-head cash costs near $20/bbl.”
“This completely changes the outlook for the oil and gas markets, in our view, and brings back the playbook of the New Oil Order, with low cost producers increasing supply from their spare capacity to force higher cost producers to reduce output,” said Goldman Sachs, as carried by Yahoo Finance.
By Tsvetana Paraskova for Oilprice.com
