Goldman has done it again: less than two weeks after the bank said “oil prices have likely hit bottom of the price range, and look attractive” when it slashed its WTI price target from $55 to $47.50 (and every other Wall Street bank promptly followed), in a note released overnight by its analysts including Damien Courvalin and Jeffrey Currie, the central banker incubator has effectively thrown in the towel, and writes that while its 3 month base case price target remains $47.5, it warns that absent a “shock and awe” production cuts from OPEC, oil could tumble below $40/barrel.
First, Goldman explains that the market remains, gasp, volatile and could move down as well as well as up:
While US oil inventories posted a large draw last week, we find that high frequency oil data is not yet providing a clear signal for oil prices to move sharply out of their recent trading range. As a result, we see symmetrical risks of higher or lower moves in the short term as data volatility continues to impact sentiment. As we laid out last week, we believe that sustained trends in inventory draws and US rig count declines or evidence of further OPEC actions will be required for prices to rally, which remains our base case with our 3-mo WTI forecast at $47.5/bbl.
And then the punchline:
Given the recent rebound in net speculative length from its 18-month lows, we believe, however, that a failure for these shifts to materialize soon could push prices below $40/bbl as the market tests OPEC’s and shale’s reaction functions. Importantly, we wouldn’t expect such a move to be volatile, as it is not driven by storage concerns like last year (with available storage capacity given the 2017 draws) but the ongoing search for a new equilibrium.
Goldman specifically envisions the growing output from Libya and Nigeria, and warns that unless OPEC engages in further “shock and awe” cuts, the next stop is lower:
