By on February 25, 2019

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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40 Comments on “Short-term Shock: Goldman Sachs Forecasts an Oil Price Spike...”

  • avatar

    Well, as I remember it, oil started rising in spring 2008. As it got warmer, price of oil went up. Up. UP! To about $150 per barrel, if I recall in mid-summer.

    Perhaps it was coincidence, but in September the financial system started to unravel.

    In August 2008, the field supply of small cars was very tight. Cobalts…lowly COBALTS were under 20 day supply.

    Of course, should history repeat itself, you’ll have to go to your friendly Asian CAR dealer.

    Insurance is a waste of money if all goes well. But I have it anyway. Small cars ‘hurt’ the US carmakers margins, so they’re dropping them. Hopefully their big bet, gambling their futures for a little more profit, for Wall St, will be a winning one.

    I’m not counting on it though.

  • avatar

    Let’s go ahead and export moar crude.

    • 0 avatar

      Yah! Read that. Thank you President Trump.

      Oil is making America great again!

      • 0 avatar

        Should have included the /s.

        • 0 avatar

          28CL did you see this article?

          • 0 avatar

            I did not, however my gripe was directed at crude oil exports, not the current policies. Previously only refined fuels could be exported which 1. always kept refineries humming and 2. forced domestic crude to be stockpiled when refineries were at capacity. More supply means decreased WTI pricing in theory.

          • 0 avatar

            I understood your original gripe.

    • 0 avatar

      And prior to that, refined fuels was the #1 US export.

      Doing that, along w/ refinery “consolidation” (where the big refiners would purchase the smaller ones and close down refineries) is what enabled them to keep fuel prices higher than what they should have been.

      And that’s not even taking into account the immense amount of speculation/$$ that poured into oil futures when the regulations were changed – which artificially inflated prices for years.

  • avatar
    SCE to AUX

    How will this affect my coal-powered EV?

  • avatar

    This article essentially says nothing. Price will go up a couple cents over spring and then back down. Thanks, I could have figured that out.

  • avatar

    What amazes me is the ability to produce and sell gasoline on such tight margins. Economies of scale are definitely at play.

    US Crude : $56.30/BBL. 1 BBL=42 gal

    Assuming a 100% conversion rate: $1.34/gal
    Federal tax: $0.184/gal
    Pennsylvania tax $0.587/gal
    Total $2.111/gal
    Current pump price 87 oct $2.699/gal
    Gross profit/gal $0.588/gal

    So they have to pay refinery overhead, distribution, and point of sale profit out of that $0.588/gal.

  • avatar
    MRF 95 T-Bird

    Does this mean the Chevrolet Cruze plant in Lordstown gets a reprieve?

  • avatar
    Master Baiter

    Drill baby, drill.

  • avatar

    So prices are going to do what they do every Spring when winter blend is phased out and summer blend is phased in? Good to know.

    Fuel mileage will also increase slightly as energy density increases.

    • 0 avatar

      Isn’t the summer blend cheaper to make than the more volatile winter blend?

      • 0 avatar

        No, you’ve got it bass ackwards, see:

        • 0 avatar

          “However, the summer-blend is also more expensive to produce, and that cost is passed on to the motorist.”

          Yeah, that’s the line I was looking for!

          I always wondered why the gas in MY area, from refineries in Artesia, Aztec, Juarez and El Paso, is so much cheaper during the summer blend season than it is during the winter blend season.

          It should be the other way around.

          Thanks for the link.

  • avatar

    A story suggesting investors are becoming weary of fracking.

  • avatar

    Prices went up the last time because of Goldman Sachs and other commodities traders goosing the prices up to cash in, even though the market supply and demand fundamentals didn’t change. It’s a pump an dump scam that all of us consumers wind up paying for.

  • avatar

    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.

    • 0 avatar

      I’ll be pretty surprised. The world is drowning in oil and demand is falling as globalists do everything in their power to desperately prevent the standard of living from rising in every industrialized and industrializing nation.

    • 0 avatar
      Art Vandelay

      Without a serious change in environmental policy regarding fracking, it ain’t gonna happen. 4 dollar a gallon won’t be back without government intervention…we just have too much ability to function as a swing producer now. Any spikes would be short lived and frankly, unless you are rocking a 460 powered Lincoln Mk V buying a new car in response to a temporary spike is among the worst financial decisions one could make

      • 0 avatar

        I would not look for ” a serious change in environmental policy regarding fracking” for the duration of the current administration which has the aim to maximize ALL energy development including nuclear, and ALL mining output to include coal, minerals and ores, oil, and natgas.

        Great for America since the worst polluters are Asia and India, not America.

    • 0 avatar

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

  • avatar

    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.

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