Oil Prices 2018 - Part 1: Goldman Sachs vs IEA

I recently posted a blog that compared Morgan Stanley viewpoints versus those of IEA when it came to US shale production.

Well, recently, Goldman Sachs and IEA released reports on their viewpoints on 2018 oil. This blog post focuses in on what Goldman Sachs believes.



Goldman Sachs (via CNBC):

In a research note published late Monday, Goldman lifted its Brent price forecast for next year to $62 a barrel and its WTI projection to $57.50 a barrel. The revisions were up from $58 a barrel and $55 a barrel respectively.

It should be noted that as of December 15th (when I'm putting this blog together), Brent was at 63.23 and WTI was at 57.30. So Goldman Sachs sees Brent prices dropping (though as of Dec 15th, there are pipeline issues that is impacting Brent prices) and WTI being relatively flat.

Goldman Sachs actually sees a greater potential for prices to come in higher than their estimates driven by demand coming in higher than anticipated and OPEC not letting up on their oil production cuts. Based on this CNBC article, there doesn't appear to be much concern regarding shale as it isn't even mentioned other than why oil prices started tanking after the highs of June 2014.

Bloomberg also has an article based on Goldman Sachs. This one is more on the idea that big oil is back and investing in those stocks is highly recommended. If the article is any indication, we're talking BP, Chevron, Exxon and Royal Dutch Shell.

There are other interesting thoughts from the article:

First: That means 90 percent of mega-projects in the last three years were initiated by the seven largest oil and gas companies, according to [Michele Della Vigna, Goldman's head of energy-industry research] analysis. In the prior 10 years, investments in the largest projects were split between 50 companies, he said.

Essentially, big oil is going to profit as oil prices hold for 2018 as they're the only ones who have invested in "mega-projects." To me, this means they can control how much oil hits the market as wells currently producing gradually deplete.

Second: This trend [Big Oil control] should continue because the economics of complex deep-water projects have got so much better that they now sit lower on the cost curve than shale oil . . .

That seems like a very interesting comment. Deep water projects are actually cheaper than shale? Goldman Sachs might be of the same opinion as Morgan Stanley. I wrote in my previous blog that Morgan Stanley sees shale oil as having labor issues (lack of labor). IEA meanwhile felt that US shale would find cost-effective ways to increase productions.