Oil prices will reverse their recent gains as global crude inventories begin to increase again, with US crude likely to drop as low as US$40 per barrel in the near-term, Goldman Sachs said.
Oil prices rose by almost one-third between January and last month on the back of Middle East supply disruptions, strong winter demand and high refinery margins. That followed a rout that had seen price falls about 60 percent between June last year and January.
However, Goldman Sachs said that “the activity pull is sequentially weakening,” adding that global crude inventories would therefore rise, pushing West Texas Intermediate (WTI) crude to US$40 per barrel, levels last seen at the peak of the global financial crisis in late 2008 and early 2009. Prices stood at about US$49.40 yesterday.
“While we continue to forecast a strong demand recovery in 2015, we believe that sequentially weaker activity, the end of winter and the end of potential restocking demand, will lead to a sequential deceleration in demand-growth as we enter the spring,” the bank said.
Goldman Sachs said that Brent prices would also come under renewed pressure.
“As a result and absent further unexpected OPEC disruptions, we expect Brent oil prices and time-spreads to reverse their recent strength, although the lack of a meaningful build in the past few months leaves risk to our forecast for [WTI] oil prices remaining at US$40 per barrel for two quarters skewed to the upside,” the bank said in a note dated on Sunday.
The bank said that it expected “OECD [Organisation of Economic Co-operation and Development] Asia demand to decline in 2015, as stronger industrial production is offset by the continued switch to LNG [liquefied natural gas] for power generation and the impending start-up of the two Sendai nuclear reactors in Japan.”
A two-thirds drop in Asian LNG prices is making the fuel cost competitive against oil in the industrial power sector.
In Japan, the regulator has given approval for several reactors to be restarted this year. All of its 48 reactors were taken offline after the meltdowns at the Fukushima Dai-ichi plant following an earthquake and tsunami in 2011.
In the US, Goldman Sachs said that “the build in US inventories has surprised to the upside, especially in Cushing.”
The bank said its WTI price forecast of US$65 per barrel for next year was “skewed to the downside,” as currently idled assets could quickly be redeployed due to falling operating costs.
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