- Goldman Sachs lowered its second and third quarter outlook for Brent crude oil and said prices could fall to $20 per barrel amid a price war between OPEC and Russia.
- That would be another 43% decline in prices after oil already fell as much as 31% after Saudi Arabia slashed prices over the weekend.
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The oil price war started by OPEC and Russia could push Brent crude to lows near $20 per barrel, according to Goldman Sachs.
The international benchmark could dip as low as $20 per barrel and test operational stress levels, a group of Goldman Sachs analysts led by Damien Courvalin wrote Sunday. The firm lowered its second and third quarter forecast for Brent crude to $30 per barrel. In addition, it now sees West Texas Intermediate oil trading at $29 per barrel in the second quarter and $28 per barrel in the third quarter.
The price war between OPEC and Russia that “unequivocally” started this weekend “completely changes the outlook for oil and gas markets,” said Courvalin. In fact, “the prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus,” Courvalin said.
The Organization of the Petroleum Exporting Countries and its allies were unable to reach an agreement over how much to restrict production amid the coronavirus outbreak, which had already weighed on prices of the commodity. Over the weekend, Saudi Arabia cut prices by the most in at least 20 years, kicking off a price war and sending oil prices plummeting as much as 31%.
"The oil market is now faced with two highly uncertain bearish shocks with the clear outcome of a sharp price sell-off," said Courvalin. Such price levels will start creating "acute financial stress and declining production" from shale and other high-cost producers, and could exacerbate the decline in oil demand, according to the note.
The energy sector also dipped following the oil price war news. The Energy Select Sector SPDR Fund (XLE) fell more than 18% in pre-market trading Monday, while the SPDR S&P Oil & Gas Exploration and Production ETF (XOP) fell as much as 27%.