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Bearish outlook: correction ahead: Goldman Sachs sees major downside risks in oil prices message


Oil prices have risen in recent weeks
Goldman Sachs warns: cutbacks in OPEC + and expected recovery on the demand side have already been priced in
Correction inevitable according to analysts


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Oil prices have recovered significantly since their historic crash at the end of April. The price for RT of the WTI variety rose within a month by around 61 percent to $ 38.25 a barrel recently, for Brent it rose in the same period by around 40 percent to currently $ 40.62 a barrel (As of June 10, 2020). The prices for the black gold benefited from a weaker dollar and demand from China as well as further and anticipated further cutbacks from OPEC +. The participating countries agreed last weekend to continue reducing oil production in July in order to further stabilize the oil market. According to the website “”, there is optimism in the market that these cutbacks could coincide with a return in oil demand, since many countries have now relaxed their corona measures, which had contributed significantly to the drop in oil prices. The oil price would benefit from such a scenario – but the US investment bank Goldman Sachs finds some hair in the soup and is anything but optimistic about the short-term prospects of the raw material.

Goldman Sachs analysts expect oil price correction

“Despite the rally, we are hesitant to recommend a long position so early in the cycle for several reasons,” wrote the US bank analysts team led by Jeffrey Currie in a Tuesday analysis, warning of “substantially increased” Downside risks. A correction of 15 to 20 percent is expected, which could already have started with the moderate sell-off on Monday, the analysis said. Damien Courvalin, also a commodity analyst at Goldman Sachs, expressed himself even more clearly in another analysis available at “ZeroHedge” at the beginning of the week and spoke of a “bearish outlook” for l. He expects Brent’s price to drop to $ 35 a barrel in the coming weeks. From the current level, this corresponds to a price decline of around 14 percent – measured at the daily high of Monday, it would even be a drop of a good 19 percent. This means that both analyzes by the US investment bank overlap with the forecast downward potential.

Many factors weigh on the oil price

The Goldman analysts also agree on the reasons for the forthcoming correction: the recent cuts by OPEC + on the stock exchange have already been more than priced in, especially since other countries are boosting their oil production again. In addition, Libya, among others, announced at the beginning of the week that the subsidy would start up again. According to Goldman Sachs, the current price level of around $ 40 per barrel would also result in US slate producers coming back into the market. The subsidy cuts decided by OPEC + could therefore quickly fizzle out in view of the offer fired by other producers.

A recovery on the demand side is also anything but a sure thing, according to the analysts. Damien Courvalin writes according to “ZeroHedge” that expectations of demand would run away from the rather gradual and uncertain rebound. The corona pandemic, in particular, remains a strong risk factor for demand for Rohl. “The positive start of the opening process [nach dem Corona-Lockdown] does not remove the uncertainty surrounding a potential second wave of infections or a more difficult recovery beyond the profits of the first few months, “said Courvalin.

Also in the “CNBC” analysis, the experts around Jeffrey Currie are surprised by the recent oil price rally “given the massive overhang in stocks and the low demand that energy and agricultural markets are facing”. They believe that the oil price – like many other raw materials – runs away from the fundamental data. Both the analysts headed by Jeffrey Currie and Damien Courvalin place a special focus on the surplus with the existing companies, which is estimated at one billion barrels of oil. This surplus – due to the corona pandemic – continues to exist and, due to its size, should not be reduced too quickly. Especially when more producers start oil production again. The experts therefore consider it very unlikely that the current oil price rally will continue for a long time against this backdrop.

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