Short-term Shock: Goldman Sachs Forecasts an Oil Price Spike

Matt Posky
by Matt Posky
short term shock goldman sachs forecasts an oil price spike

While the 2019 fuel forecast calls for temperate prices at the pump, Goldman Sachs claims we could be in for a brief surge this spring.

Global oil production is expected to take a sizable hit next month. Saudi Arabia, along with the rest of OPEC, has been limiting production to prop up prices. Meanwhile, Venezuela is having trouble across the board. The nation’s ongoing political crisis has resulted in a steady decline in oil production since 2013, and U.S. sanctions effectively made doing business with Venezuela’s state-owned oil company, PDVSA, an impossibility overnight.

Considering the United States could undermine OPEC members by simply increasing shale drilling, another energy crisis is out of the question. However, that takes time, leaving a window where oil prices could shoot up by as much as 13 percent. Fortunately, Bloomberg reports that the window should be relatively small.

“The oil market will likely continue to tighten significantly this March and April,” Goldman Sachs analyst Jeffrey Currie explained. “While prices could easily trade in a $70-$75 a barrel trading range, we believe such an environment would likely prove fleeting.”

Currently, Brent Crude is sitting at about $65.85 per barrel, while U.S.-sourced oil is around $56.30 a drum.

From Bloomberg:

Saudi Arabia is guiding to March production around 500,000 barrels a day lower than its own quota, Currie said in the Feb. 25 note. At least 100,000 barrels a day of Venezuelan exports have been lost, and this could rise to a daily 200,000 to 300,000 barrels in coming months if there’s no political resolution, he said.

On the demand side, a surge in Chinese credit in January has eased fears of a slowdown in Asia’s biggest economy, the Federal Reserve is tilting dovish and consumption data from India, France and Italy points to stronger growth, Goldman said.

You’ll likely notice a modest bump at the pump and plenty of heated rhetoric emanating from politicians. Donald Trump took to Twitter earlier today to express his annoyance with the Organization of Petroleum Exporting Countries. “Oil prices getting too high,” the president said. “OPEC, please relax and take it easy. World cannot take a price hike — fragile!”

The world may not take it easy, but the United States should be able to weather this storm without too much trouble. Last week, the Energy Information Administration reported a 3.67 million barrel increase in U.S. oil supplies — far more than analysts expected. Earlier in the month, it also noted that U.S. shale output should rise by around 84,000 barrels a day through March of 2019, resulting in a record 8.4 million barrels per day. And all of this is happening as companies plan major investments in Texas and New Mexico to further raise crude production later this year.

That still means a lean supply for spring, but American motorists should come out on the other side relatively unscathed.

[Image: CC7/Shutterstock]

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  • Vulpine Vulpine on Feb 25, 2019

    The only surprise I feel is that it has taken so long in coming. Do not be surprised if over the next couple of years, fuel prices continue to rise to that $4+ region we visited about 8 years ago.

    • See 3 previous
    • Syncro87 Syncro87 on Feb 26, 2019

      I think the chance of that happening is fairly low, barring some sort of pretty major war / conflict.

  • Voyager Voyager on Feb 26, 2019

    No better way to get oil prices down, than to have more renewable energy and electric cars! THERE's where ALL car owners meet each other, have a mutual interest.

  • FreedMike This article fails to mention that Toyota is also investing heavily in solid state battery tech - which would solve a lot of inherent EV problems - and plans to deploy it soon. course, Toyota being Toyota, it will use the tech in hybrids first, which is smart - that will give them the chance to iron out the wrinkles, so to speak. But having said that, I’m with Toyota here - I’m not sold on an all EV future happening anytime soon. But clearly the market share for these vehicles has nowhere to go but up; how far up depends mainly on charging availability. And whether Toyota’s competitors are all in is debatable. Plenty of bet-hedging is going on among makers in the North American market.
  • Jeff S I am not against EVs but I completely understand Toyota's position. As for Greenpeace putting Toyota at the bottom of their environmental list is more drama. A good hybrid uses less gas, is cleaner than most other ICE, and is more affordable than most EVs. Prius has proven longevity and low maintenance cost. Having had a hybrid Maverick since April and averaging 40 to 50 mpg in city driving it has been smooth driving and very economical. Ford also has very good hybrids and some of the earlier Escapes are still going strong at 300k miles. The only thing I would have liked in my hybrid Maverick would be a plug in but it didn't come with it. If Toyota made a plug in hybrid compact pickup like the Maverick it would sell well. I would consider an EV in the future but price, battery technology, and infrastructure has to advance and improve. I don't buy a vehicle based on the recommendation of Greenpeace, as a status symbol, or peer pressure. I buy a vehicle on what best needs my needs and that I actually like.
  • Mobes Kind of a weird thing that probably only bothers me, but when you see someone driving a car with ball joints clearly about to fail. I really don't want to be around a car with massive negative camber that's not intentional.
  • Jeff S How reliable are Audi? Seems the Mazda, CRV, and Rav4 in the higher trim would not only be a better value but would be more reliable in the long term. Interior wise and the overall package the Mazda would be the best choice.
  • Pickles69 They have a point. All things (or engines/propulsion) to all people. Yet, when the analogy of being, “a department store,” of options is used, I shudder. Department stores are failing faster than any other retail. Just something to chew on.