Goldman Sachs: Oil prices drop will probably not continue

The current selloff in energy stocks is but an opportunity for buyers, according to a Thursday note from Goldman Sachs’ European energy team, who added that current prices are likely unsustainable in the long run.

But has oil really reached the bottom? Goldman thinks so, but its bullish view is markedly different from a host of other analysts who think we may go lower still, including Bank of America Merrill Lynch (BofAML) who sees $30-oil in 2018 likely, as well as consultants FGE, who said oil is “most definitely” heading to $40, and oil in 2018 could reach $30 oil as new supply exceeds demand growth next year—unless OPEC deepens its cuts.

While BofAML and FGE specifically mention either OPEC or its members—namely Nigeria and Libya—when talking about oil prices (particularly about how their efforts are insufficient to lift prices), Goldman’s conclusion is based on the inability of US shale to continue pumping oil at this pace when “oil prices are below the marginal cost of production for shale producers. ($50-$55/bl brent).”

So while bearish analysts are talking about what OPEC is incapable of doing, bullish analysts are talking about what US shale is incapable of doing.

Source: Bloomberg Pro Terminal

Jr Trader Ivan Ivanov