World is producing more than it needs, thanks to boom in shale oil, bank says
One of the world’s leading investment banks says the benchmark price of North American oil is going to fall even further, to $70 US a barrel by next spring.
Investment bank Goldman Sachs slashed its forecast late Sunday night for both West Texas Intermediate (known as WTI) and Brent crude — the two most common types of oil used and sold in North America and Europe.
Goldman Sachs says WTI will go for $75 a barrel in the first three months of 2015. Brent, meanwhile, will change hands at $85 a barrel. Both forecasts are down $15 from what the bank was last expecting. And both are forecast to slip even lower in the second quarter — historically a seasonally low time for oil prices — before rebounding a little in the summer of 2015.
Currently, WTI is trading just below $80 US. That’s down from more than $100 a barrel as recently as four months ago.
The main reason the bank cited for its call is simple supply and demand — there’s just more oil being produced now than the world needs, the bank says.
A boom in shale oil and gas in North America this year and last has drastically increased the amount of oil in circulation. This month, it’s expected that the U.S. will pump out more crude oil than Saudi Arabia does — the first time that’s been the case since the early 1970s.
Saudi Arabia could traditionally control the price of oil by limiting supply due to its status as the world’s largest pumper of crude. Now, there’s a conspiracy theory going around in oil circles that the Saudis are quite happy to let the oil price go into freefall long enough to convince new U.S. rivals it’s not worth it to develop their resources.
“Goldman is saying a new oil order has arrived where the Saudis have decided to let the short-term oil price be low long enough to curb U.S. production in the shales,” is how Judith Dwarkin, chief economist for the Ross Smith Energy Group in Calgary put it.
As one of the cheapest sources of oil in the world, the Saudis can certainly better afford to wait out the current price lull more than most. Projects in Northern Alberta can’t afford to have nearly as much patience. “Oilsands are far more sensitive to drops in price,” Dwarkin said. “You don’t have to go to $75 to be in pain as an oilsands miner.”
Full article: Oil price will fall to $70 US a barrel in 2015, Goldman Sachs says (CBC News)