Monday, April 11, 2016

Goldman says $35 oil is Goldilocks ideal for US explorers

From @Bloomberg -- Oil at $35/bbl is neither too high nor too low but just right to make shares of US explorers worth buying, according to Goldman Sachs.

While prices of crude at that level are above cash costs of production, they will deter a rebound in shale output from occurring too early, the bank’s analysts said in a report dated April 6. Oil at $30 to $35 should keep the behavior of US companies unchanged and help lift WTI to $55 to $60 in 2017, according to Goldman. “We view our second-quarter 2016 oil outlook as an idealistic Goldilocks scenario,” the analysts wrote in the report. “We would use volatility to add to positions of shale productivity winners and the next rung down.” Goldman said it favors US producers EOG Resources, Diamondback Energy and PDC Energy as well as stocks in “the next rung down”—Hess, Cenovus Energy, Anadarko, Encana, Continental Resources and Whiting. While the bank predicts WTI crude prices will average $35 in the second quarter, it forecasts $38 for 2016 and $57.50 for next year.

Shale Boom

After an American shale boom triggered a crash in prices from more than $100 in mid-2014, the number of rigs drilling for oil in the US has dropped to the lowest level since 2009 as producers tackle the fallout from a global oversupply. Crude has rebounded since mid-February amid speculation that members of OPEC and producers outside the group would forge a deal to freeze output and shrink the glut.

Goldman has “been less willing to believe in a sustained OPEC production freeze or cut,” according to the report. It expects the group’s output to increase by 600,000 bopd in 2016 and 500,000 bopd next year.

Saudi Arabia has said it will only freeze output if it’s joined by other suppliers including Iran, while Kuwait has signaled a deal doesn’t hinge on the Persian Gulf state. Iran, meanwhile, plans to boost production to 4 MMbpd by the end March 2017, according to the nation’s Shana news service, which cited Oil Minister Bijan Namdar Zanganeh.


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