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Goldman Sachs have been floating around the possibility of oil dipping into cash cost of $20 a barrel for a while, so it is refreshing to see the same Goldman Sachs talking about oil prices getting “closer to a bottom” this morning.
Near-term fundamentals in this oversupplied industry are deteriorating, which means that some pumpers could be closing shop eventually. Goldman wrote:
Latest datapoints suggest a deceleration in oil demand, driven by now tough year-on-year comps and weakening macro in emerging markets. With inventories of both crude and products continuing to rise, storage options are becoming limited, particularly in the European diesel market. Breaching diesel storage would force refineries to lower runs/shut down, temporarily reducing crude oil demand, and potentially forcing crude to be stored offshore, requiring a further steepening in the forward curve. Whilst not there yet, we are approaching levels that are likely to force production temporarily offline.
Just this week Morgan Stanley warned that the super-strong U.S. dollar could drive crude oil to $20 a barrel. Not to be outdone, Royal Bank of Scotland said $16 is on the horizon, comparing the current market mood to the days before the implosion of Lehman Brothers in 2008.
Standard Chartered doesn't think those dire predictions are dark enough. The British bank said in a new research report that oil prices could collapse to as low as $10 a barrel -- a level unseen since November 2001.
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