Goldman thinks you should go long on oil

https://seekingalpha.com/article/4072313-goldman-thinks-go-long-oil

As pessimism sweeps over the oil market, a few prominent voices are unbowed, arguing that the market is well on its way towards balance.

Goldman Sachs’ head of commodities Jeff Currie said at an S&P Global Platts Conference in London this week that investors should probably be going long on crude oil.

Goldman predicts a rather modest inventory build of just 6 million barrels (crude oil and refined products) across the U.S., Europe, Japan and Singapore between March and April.

As pessimism sweeps over the oil market, a few prominent voices are unbowed, arguing that the market is well on its way towards balance.

Goldman Sachs’ head of commodities Jeff Currie said at an S&P Global Platts Conference in London this week that investors should probably be going long on crude oil because the market is already in a supply deficit. He pointed to the futures market, where the curve could be headed into backwardation – a situation in which near-term oil futures trade at a premium to contracts further out. That structure points to concerns about a deficit in the short run, which is why front month contracts would trade at a higher price than deliveries six or twelve months away.

But the backwardation is also a symptom of fears over long-term oil prices. Goldman Sachs has consistently argued that crude prices could remain relatively low for years to come as the cost of production has shifted lower. So, lower long-term prices have pushed the back end of the futures curve lower, with near-term prices trading higher.

There is a feedback effect from the market shifting into backwardation. If spot prices are above long-term prices, then fewer companies will be willing to lock in next year’s production at those lower prices. Without industry-wide hedging, the ability to grow production is diminished. Or, as Goldman Sachs put it in its latest research note, “fear of long-term surpluses reinforces near-term shortages.”

Putting some of the jargon aside, Goldman is simply arguing that the oil market will be much tighter this year than most people seem to think. The investment bank forecasts returns on commodity prices on the order of 13.3 percent over the next three months and 12.2 percent over the next 12 months.

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they probably know..but sometimes public messages are not what they seem..

“because the market is already in a supply deficit. He pointed to the futures market, where the curve could be headed into backwardation – a situation in which near-term oil futures trade at a premium to contracts further out. That structure points to concerns about a deficit in the short run, which is why front month contracts would trade at a higher price than deliveries six or twelve months away.”

401

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~ by seeker401 on May 15, 2017.

4 Responses to “Goldman thinks you should go long on oil”

  1. Yes Mr Gold Man..

  2. Reblogged this on World Peace Forum.

  3. LONG weapons manufacturers..

  4. […] https://seeker401.wordpress.com/2017/05/15/goldman-thinks-you-should-go-long-on-oil/ […]

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