Goldman Sachs disagrees with Trump's mood over oil prices
- 3 months ago
According to Goldman Sachs head of commodities, Jeff Currie, the decline in oil prices resulting in $50 per barrel is bad for the U.S.
Currie's coments area somewhat the opposite of the White House's views on the same topic given that president trump has been rather pleased by the recent developments and has urged Saudi Arabia to continue with the lowering of the prices.
Not to mention the fact Trump has also somewhat pressured OPEC to reject output cuts when they meet Russia next week.
Saudi Arabia did convince 12 oil producers to increase production back in June following the U.S. sanctions to Iran, nevertheless Trump was rather softer than expected hence OPEC and its allies are strongly signaling they will squeeze back output following a tumble in oil prices.
Currie believes Saudi Arabia and Russia have an opportunity to convince Trump that the cuts are necessary when they meet in Buenos Aires this weekend.
"We think a production cut is in the interest of all three parties," Currie told CNBC's "Squawk on the Street" on Monday. "Oil prices at $50 a barrel dig into the U.S. industry's cost structure. It's not good for the U.S. either at these prices."
U.S. West Texas Intermediate crude prices fell to a more than one-year low at $50.10 on Monday, down 35% since the start of October.
According to Currie the price that would please all parties would be around the $65 to $70 mark.
"When you're in that level it's not too high and damaging the consumer, but at the same time, it creates a stable environment for the industry," Currie stated.
Currie puts the "all-in cost" of producing oil from American shale fields — including return on capital — at roughly $50 a barrel.
That being said, the costs do vary depending on the region and also from field to field within that particular region.
However analysts are concerned about the fallout of $50 oil in U.S. shale fields, where the expensive process called hydraulic fracturing to free oil and gas from rock formations is mostly relied on.
"What I think a lot of analysts are worried about ... is if the Saudis continue to try to placate Trump, they are going to be oversupplying this market," Helima Croft, global head of commodity strategy at RBC Capital Markets, told CNBC last week.
"You have a situation where if President Trump really wants prices to continue to decline further, that is going to really hurt the U.S. shale industry."
On Sunday, brokerage and investment firm Stifel slashed its 2019 price forecast for U.S. crude by 27% to $53.73. If that forecast bears out, Stifel says the 39 oil and gas companies it covers will have to find a way to fill a $8.2 billion cash flow deficit next year. Prior to its revised forecast, Stifel saw the companies generating $16.1 billion in positive free cash flow.
"If OPEC decides not to cut production and crude oil prices hover at or below current levels, companies will likely need to lower activity levels to avoid a meaningful cash flow shortfall in 2019," Stifel analysts said.
Source: Smart Trend Team/ CNBC