A compelling piece of research from Goldman Sachs is being passed around the street this morning. It makes the case for $75 crude oil for the next 12+ months. Here are the key points:
- The 2015 global oil market will be significantly oversupplied unless US shale production growth slows, which will only happen if prices are around $75/bbl
- Even if there is a slowdown in shale production it would take six months to impact the market, leaving 1H15 oversupplied
- Oil service companies (Halliburton Company (NYSE:HAL), Schlumberger NV (NYSE:SLB), etc.) will be particularly hard hit by a lower oil price which will surely lead to large cuts in Cap-Ex – so avoid leveraged oil services companies
- Dividend payments from the large integrateds are likely to come under pressure
The key charts:
In summary, the story is pretty clear; the boom in North American shale oil combined with technological improvements which are driving cost deflation in oil production pose serious headwinds for the price of oil to buck for the foreseeable future. Weak global economic growth might serve as the final nail in the coffin for oil prices.