Oil Continues Its Pullback As Demand For Riskier Assets Declines

Oil Video 09.06.20.

Goldman Sachs Is Bearish On Oil For The Near Term

Oil is losing ground today amid general decline in demand for riskier assets. As always, there’s no shortage of oil price forecasts, and Goldman Sachs is out with its own, calling the near-term top of the oil rally.

According to Goldman Sachs, the latest production cut from OPEC+ was fully priced in, and Brent oil should decline to $35 per barrel. Currently, the spread between Brent oil and WTI oil is roughly $2, so Goldman Sachs’ forecast implies WTI oil prices of $33 per barrel.

I’d note that the spread between the front month contract and longer-dated contracts has consistently decreased during the current oil price rally. At the time of writing, WTI July 2020 contract is at $38, while December 2020 is at $39.

This means that the market does not expect that the situation in the oil market will improve materially at the end of this year, and the pricing of longer-dated contracts simply reflects current oil price dynamics.

This may be a sign that the oil market is due for a pullback. At the same time, a lot will depend on the upcoming inventory data. API Crude Oil Stock Change report is due to be released today in the evening so the oil market will soon get another material catalyst.

Continuation Of Turmoil In Libya Is A Bullish Factor For Oil

Libya’s oil production is under major pressure from various armed groups due to the civil war in the country.

On Sunday, Libya’s National Oil Corporation stated that it had resumed oil production at Sharara oilfield. This field should be able to produce 300,000 barrels per day (bpd) but it will begin production at 30,000 bpd.

However, another armed group showed up at the field just a day after it was restarted and ordered oil workers to stop oil production.

Judging by the previous delays, this situation could take weeks to get solved. After this, Sharara will need time to get to the pre-turmoil capacity. For the oil market, this is a bullish development since it does not need additional production at the time when it tries to work through excessive inventories.

For a look at all of today’s economic events, check out our economic calendar.