Welcome back to the real world folks, our patriotic holiday may have come to a close, but our markets are still open and on the move. A few financial giants (Goldman Sachs, Bank of America and JP Morgan) just came out with fresh market forecasts, which could very well be the reason why the price floor is being pushed down this morning.
Goldman Sachs has now changed its prediction for the average WTI crude price for 2017 from $54.80 per barrel to $52.92 per barrel. Goldman also predicts that WTI will stay right around $50 for the next 2 years, give or take. According to a collection of analysts at Goldman, the market will test lower levels than originally expected.
Why are we still heading lower? Well…. for one thing, the market effect of OPEC’s cuts was unimpressive to say the least. U.S. shale production has showed no sign of stopping and more and more exploration projects continue to be brought to the table. Companies such as Range Resources, Anadarko and Concho are a few who seem to be leading the pack in regards to exploration and drilling.
Whether it’s in the Permian or Delaware Basin, companies like these will continue to explore and drill as long as the market allows them to be profitable. It’s evident that when crude prices gain strong support, (especially in recent months), that shale production is also likely to follow suit. OPEC even changed its line of thinking towards U.S. shale production. The cartel now expects that an additional 106 million barrels will be added to market this year. Helping drive U.S. production, is the fact that producers having learned their lesson when prices plummeted, now routinely hedge forward production. This allows them to continue to produce even as prices fall.
How can the market avoid another devastating dip in oil prices when shale production has been so strong lately? Some like to believe that if crude can stay between $45 and $50, U.S. production will settle down a little. The question at hand now is, who has the capabilities to keep crude range-bound between $45 and $50? OPEC put forth some effort with its cuts, but these actions seem to be having less effect on the market that in years past. Will there be a hero that saves the day and keeps production profitable for the world and its producers?
As of 11:00 am, refined products are down approximately 2 cents, while crude sits at $49.43 per barrel.