Goldman Sachs Says Oil Bear Market Excessive

Oil’s collapse into a bear market is excessive because there’s no oversupply to justify the selloff, according to Goldman Sachs Group Inc.

The bank is “near-term constructive about prices” after they fell too much, too soon, analysts including Jeffrey Currie, the head of commodities research in New York, wrote in a report e-mailed today. While expectations of a glut have driven down crude, the risk of a near-term shortage may increase as forward prices of benchmarks including West Texas Intermediate and Dubai crude discourage stockpiling, it said.

Oil futures slumped to the lowest in four years in London amid the highest U.S. output in almost 30 years and weakening global demand growth. Members of the Organization of Petroleum Exporting Countries are responding by cutting prices, prompting speculation that they will compete for market share rather than reduce production.

“The ‘supply glut’ is not yet here today, it exists in expectations,” the Goldman analysts wrote. “Prices have likely overshot to the downside.”

The lower prices go, the tighter the balance between supply and demand will become, Goldman said. With every 10 percent drop in oil prices, consumption grows by 0.15 percent, the bank estimated. Brent crude’s slump of almost 30 percent from its June peak may mean additional demand of almost 500,000 barrels a day, according to the bank.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza