May 18, 2015 – Goldman Sachs has cut its long-term crude oil price forecasts and recommended investors sell shares in two major oil companies, saying that improved U.S. shale efficiency and higher production from OPEC will more than cover future demand.
The U.S. investment bank’s equities team, in a note published on Saturday, raised its projection for the average Brent crude oil price this year to US$58 a barrel from US$52 and lifted its outlook for U.S. light crude futures to US$52 a barrel from US$48.
But Goldman, closely followed investors including large pensions and hedge funds, said it expects Brent to fall over time, reaching US$55 a barrel by 2020.
Brent traded around US$67 a barrel at 1100 GMT this morning.
“We lower our Brent oil price assumption to US$60-US$65 for 2016-2019, falling to US$55 for 2020,” Goldman said.
“We see global oil demand being met by U.S. shale, which is
continuing to benefit from efficiency and productivity improvements, and OPEC,” the bank’s note to clients added.
Goldman said that this “lower-for-longer oil price” would “put significant pressure” on integrated oil companies, forcing a rethink on dividends.
“As a result, we downgrade the sector outlook to ‘cautious’ from ‘neutral’,” it said.
The bank downgraded BP and Statoil to “sell” from “neutral”, citing long-term dividend risk for BP and cashflow pressure on Statoil.
Last week the U.S. investment bank described a recent rally in oil prices was “premature”, adding that a weakening of prices is required for a rebalancing of the market to resume.
Oil prices have recovered this year after sharp falls through the second half of 2014.
Goldman Sachs said it assumed a US$5 a barrel spread between Brent and U.S. crude, which is also known as West Texas Intermediate (WTI), through 2016-2020.