Goldman Sachs oil price forecasts - Sept 16
Posted: Mon Sep 16, 2019 9:16 am
Note below went GS clients on Sunday afternoon.
Two oil facilities in Saudi Arabia were targeted on Saturday by drone attacks, with the extent of the damage highly uncertain yet potentially significant: half of current production was halted while reports indicate that a re-start of most oil output could occur in days or weeks. The potential for a prompt resumption of production hinges on the fact that most damage occurred at a processing plant rather than a field.
This is nonetheless a historically large disruption on critical oil infrastructure and these events represent a sharp escalation in threats to global supply with risks of further attacks. These events are therefore set to support oil prices at their open on Sunday, especially given recent growth concerns and low levels of positioning. The magnitude of such a price rally is difficult to estimate in the absence of official comments on the timeline and scale of production losses. We nonetheless provide a rough first estimate of possible outcomes based on our pricing framework and the experiences of the 2018 Iranian sanctions and the 2011 Libya production losses:
> A very short outage – a week for example – would likely drive long-dated prices higher to reflect a growing risk premium, although short of what occurred last fall given a debottlenecked Permian shale basin, a weaker growth outlook and prospects of strong non-OPEC production growth in 2020. Such a price impact could likely be of $3-5/bbl.
> An outage at current levels of two to six weeks would, in addition to this move in long-dated prices, see a steepening of the Brent forward curve (2-mo vs. 3-year forward) of $2 to $9/bbl respectively. All in, the expected price move would be between $5 and $14/bbl, commensurate to the length of the outage (a six month outage of 1 mb/d would be similar to a six week one at current levels).
> Should the current level of outage be announced to last for more than six weeks, we expect Brent prices to quickly rally above $75/bbl, a level at which we believe an SPR release would likely be implemented, large enough to balance such a deficit for several months and cap prices at such levels.
> An extreme net outage of a 4 mb/d for more than three months would likely bring prices above $75/bbl to trigger both large shale supply and demand responses.
Key questions from here:
Please note there has been significant speculation as to the party/parties responsible for the attacks with no official conclusion or statement yet made.
> Will Saudi actually be able to return production by Monday / what is the extent of the damage at relevant fields, oil processing facilities (is there any permanent damage)?
> Will there be future attacks on key elements of Aramco infrastructure?
> Will Saudis respond / how?
> Was Iran involved in the attack, if so how (i.e. IRGC acting independently from official government action?)
> How does this affect Trump Administration’s stance on potentially softening Iranian sanctions - particularly given the domestic political implications of higher oil prices heading into the general election / recent headlines around NSA Bolton leaving the Administration (https://www.aljazeera.com/news/2019/09/ ... ng-trump-i…)?
Two oil facilities in Saudi Arabia were targeted on Saturday by drone attacks, with the extent of the damage highly uncertain yet potentially significant: half of current production was halted while reports indicate that a re-start of most oil output could occur in days or weeks. The potential for a prompt resumption of production hinges on the fact that most damage occurred at a processing plant rather than a field.
This is nonetheless a historically large disruption on critical oil infrastructure and these events represent a sharp escalation in threats to global supply with risks of further attacks. These events are therefore set to support oil prices at their open on Sunday, especially given recent growth concerns and low levels of positioning. The magnitude of such a price rally is difficult to estimate in the absence of official comments on the timeline and scale of production losses. We nonetheless provide a rough first estimate of possible outcomes based on our pricing framework and the experiences of the 2018 Iranian sanctions and the 2011 Libya production losses:
> A very short outage – a week for example – would likely drive long-dated prices higher to reflect a growing risk premium, although short of what occurred last fall given a debottlenecked Permian shale basin, a weaker growth outlook and prospects of strong non-OPEC production growth in 2020. Such a price impact could likely be of $3-5/bbl.
> An outage at current levels of two to six weeks would, in addition to this move in long-dated prices, see a steepening of the Brent forward curve (2-mo vs. 3-year forward) of $2 to $9/bbl respectively. All in, the expected price move would be between $5 and $14/bbl, commensurate to the length of the outage (a six month outage of 1 mb/d would be similar to a six week one at current levels).
> Should the current level of outage be announced to last for more than six weeks, we expect Brent prices to quickly rally above $75/bbl, a level at which we believe an SPR release would likely be implemented, large enough to balance such a deficit for several months and cap prices at such levels.
> An extreme net outage of a 4 mb/d for more than three months would likely bring prices above $75/bbl to trigger both large shale supply and demand responses.
Key questions from here:
Please note there has been significant speculation as to the party/parties responsible for the attacks with no official conclusion or statement yet made.
> Will Saudi actually be able to return production by Monday / what is the extent of the damage at relevant fields, oil processing facilities (is there any permanent damage)?
> Will there be future attacks on key elements of Aramco infrastructure?
> Will Saudis respond / how?
> Was Iran involved in the attack, if so how (i.e. IRGC acting independently from official government action?)
> How does this affect Trump Administration’s stance on potentially softening Iranian sanctions - particularly given the domestic political implications of higher oil prices heading into the general election / recent headlines around NSA Bolton leaving the Administration (https://www.aljazeera.com/news/2019/09/ ... ng-trump-i…)?