Goldman Does not See Energy Producers Slowing Down

In a research note following its Jan. 5-7 Global Energy Conference in Miami, which was closed to the media, the analysts said that investor sentiment “deteriorated further” during the event for three reasons, including a view that drillers were still overly optimistic about the potential for $50 oil.

“Investors felt producers were not being responsive to $35 a barrel WTI (West Texas Intermediate crude oil) by focusing more on their agility versus potential for their production to decline,” they wrote.

Unfavorable weather and weakness in the Chinese economy also weighed on sentiment, the analysts said in a note entitled “Are we there yet?”. They also said Pioneer Natural Resources’ $1.4 billion equity offering this week “increased investor concern that financial stress is insufficient to bring oil markets back into balance”.

While the note is focused on energy companies rather than the oil market, it offers a new perspective on the dramatic 10 percent slump in crude prices this week that traders blamed on a variety of other factors, including a dive in the Chinese stock market and a sharp rise in U.S. gasoline stocks.

It also reinforces the core thesis underpinning the bank’s ultra-bearish outlook on the oil market. Its market analysts have been warning that a $20 a barrel price shock may be necessary to accelerate the slow-down in drilling and prevent global inventories from overflowing with surplus crude oil.

via Reuters

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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 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