US bank Goldman Sachs has cut its 2015 price forecast for Brent crude to $50.40/bl from $83.80/bl, and has reduced its projection for US benchmark WTI to $47.10/bl from $73.80/bl.
Goldman Sachs expects Brent to fall to $42/bl in the second quarter before recovering to $64.50/bl in the fourth quarter. "We see inventories continuing to build, which will likely need the economics of floating storage to work in the first half of 2015. We therefore price in a strong contango in the first half, while the sharp change in US shale activity and other short term investments… are likely to rebalance the physical market by the end of this year," the bank said. "The shorter-term investment cycle in shales should help rebalance the physical market faster than in the past," it said.
Goldman Sachs expects cost deflation to be a key driver of oil prices in the longer term.
"Unlike in the past, when the rebalancing took place primarily in the 'physical' and 'paper' markets, today the 'capital' markets are playing the dominant role. This new source of adjustment is generating not only a high level of disorientation, but also the need for an entirely new paradigm from which to view these markets," Goldman Sachs said.
"We believe that we will see around 20pc deflation in the global oil supply chain on a structural basis, driven by the de-bottlenecking of the oil service chain and the unwinding of a 15-year inflationary bull market in oil investment." it said. The bank has changed its 2016-18 price forecast to $70/bl from $90/bl for Brent and to $65/bl from $80/bl for WTI "to reflect a shift downwards in the cost curve".
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