Why Goldman Sachs Raised Its Crude Oil Price Forecast



Bearish drivers  

The IEA (International Energy Agency) expects non-OPEC crude oil production to rise by 500,000 bpd (barrels per day) in 2017—compared to 2016. The rise in the global crude oil supply will pressure crude oil prices. Donald Trump’s victory and high crude oilgasoline, and distillate inventories will also pressure crude oil prices. The strengthening dollar and rising US crude oil rigs could pressure crude oil prices. For more on crude oil prices, read Part 1 of this series.

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Goldman Sachs (GS) expects that OPEC (Organization of the Petroleum Exporting Countries) might succeed in its plan to cap or reduce crude oil production in the meeting on November 30. It could curb the crude oil surplus in 1H17 and support crude oil prices. Goldman Sachs expects that US WTI (West Texas Intermediate) crude oil prices will average $55 per barrel in 1H17—compared to previous estimates of $47.5 per barrel for the same period. For more on OPEC’s meeting, read Part 1 of this series.

The EIA (U.S. Energy Information Administration) estimates that the US and Brent crude oil prices will average $50 per barrel and $51 per barrel, respectively, in 2017.

Impact on ETFs and stocks 

Volatility in crude oil prices can impact oil and gas producers’ earnings such as Marathon Oil (MRO), ConocoPhillips (COP), Cobalt International Energy (CIE), Goodrich Petroleum (GDP), and QEP Resources (QEP).

Moves in crude oil prices also impact funds such as the ProShares UltraShort Bloomberg Crude Oil (SCO), the iShares US Energy (IYE), the Fidelity MSCI Energy ETF (FENY), the Direxion Daily Energy Bear 3x ETF (ERY), the VelocityShares 3x Inverse Crude Oil ETN (DWTI), and the PowerShares DWA Energy Momentum ETF (PXI).

For more on crude oil prices, read Saudi Arabia: Weather Will Be a Key Demand Driver of Oil in 2H16. For more on crude oil price forecasts, read Will Crude Oil Prices Test 3 Digits Again? and Major Banks Downgrade Crude Oil Prices despite OPEC’s Deal.

For related analysis, visit Market Realist’s Energy and Power page.


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