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Goldman's Take | Russell T. Rudy Energy LLC

“World Oil” reports that investment banking firm Goldman Sachs, sees a positive, but limited, price response to production cutbacks. Goldman cautions that recent higher prices will stimulate additional U. S. shale oil production which will cap prices.

Nevertheless, the firm anticipates that OPEC and non-OPEC (NOPEC) production cuts, in conjunction with increased global demand, will help rein in the oil glut by next summer. The recent production cutback agreement includes nations that produce 60% of the world’s crude. The plan is that OPEC will reduce output by 974,000 barrels of oil per day (bopd), and the NOPEC nations by an additional 388,000 bopd.  Productions cuts are expected to begin on January 1, and by mid-month the degree of compliance with the accord should become evident.

Goldman expects about 84% compliance with agreed cuts resulting in a move to $55 per barrel. This should be enough to prompt domestic shale producers to bring more production on line.  Nevertheless we can expect prices to rise to $57.50 by the end of the second quarter of 2017.  The firm cautions that a strong dollar, a ramp-up in Libyan output, or poor compliance with the agreement could force prices lower.

Demand is expected to increase by 1.5 million bopd in 2017 (as opposed to 1.55 this year). This, in conjunction with the anticipated production cuts, should balance markets by the third quarter of next year.  However, by year-end, Goldman expects domestic shale operators to have increased output by an additional 800,000 bopd, driving prices down to $55 in 2018.

To read the article in its entirety, please go to http://www.worldoil.com/news/2016/12/16/goldman-sees-oil-lower-for-longer-after-getting-a-bump-from-cuts .

Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide.  Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.