So after Goldman Sachs hit us up with the big headline a month back that oil prices could reach as low as $20 a barrel next year – back when the oil prices kept falling and even dipping below $40 in late August – the investment bank clarified its outlook, or more precisely reiterated its earlier statement, on oil. The bank revised down its outlook for 2016 WTI oil more than a month ago from $57 to $45. And also pointed out that there is less than 50% chance that oil could fall to $20 next year.
Back then, when oil prices were close to $40 the major news outlets (including your truly) pointed out that GS estimate oil could fall to $20; it wasn’t addressed that GS pointed this out as a possible outcome, one of several.
Now that oil prices have slightly recuperated, the sentiment, while hasn’t changed dramatically, is still less bearish than where it was a month or two back. And now we are hearing GS trying to clarify its point about the whole “$20 quote”: It was “only” a possibility with less than 50% and not the average price for the year.
As many have suggested, I too think that oil prices dipping to $20 is way less likely than close to $50 next year even if it’s for a short time. It’s more likely that oil prices will rise to above $60 than fall to $30. These issues weren’t mentioned by GS and they decided to convey the bearish message when the market expected such statement – in short GS were rising the trends.
So where does it leave the oil market? There is still a supply glut, the demand remains uncertain, the storage level are still elevated and the U.S. dollar is likely to bounce back –factors that are pushing down oil prices. But oil is also a very volatile commodity and it won’t take much for its price to recovery by next year.
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