Oil market entering a phase of rebalancing claims Goldman Sachs
Increased oil production from countries with lower costs is going to hold down the price of crude, according to industry experts at Goldman Sachs.
Goldman commodity analysts claim the “new oil order” means that output from the likes of Iran and Iraq will soon entirely offset disruption from higher cost producers.
Recently the oil price has been buoyed by production problems in Canada, Nigeria, and Venezuela.
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The price of crude came close to crossing the $50 per barrel mark at the end of last week but has since fallen back from the psychological barrier.
In early evening trade last night US light sweet crude hit $48.54 per barrel, while a barrel of international benchmark Brent crude was going for $48.64.
Jeff Currie, global head of commodities research at Goldman Sachs, said: “When we think about the new oil order, the key theme is this idea of low-cost producers now beginning to grow production.”
According to Currie economic supply cuts in the US, combined with stronger demand in places like India lead to a physical draw on inventories for the first time since 2014.
Despite recent rises, Goldman Sachs expects oil prices will fall back again in early 2017 as lower cost oil producers export more steadily.
The three things moving the market at the moment: wildfires in Canada; civil unrest in Nigeria and Venezuela, and higher than expected demand from India are not expected to last.
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Earlier this week Goldman Sachs said it is forecasting US oil prices to remain in the $50 to $60 a barrel range through to 2020.
It pointed to both increased supply from oil cartel Opec members but also improved shale oil productivity in the US.
"We continue to have a long-term deflationary oil outlook driven by shale productivity, elevated Opec supply and, in 2016-18, project start-ups," the bank said in an equity research note dated 20 May.