News

2016 Could See Bunkers Under $100 in Key Ports as Goldman Sachs Sticks to its $20/bbl Oil Prediction

Source: Ship & Bunker

December 21st 2015

Goldman Sachs is sticking to its earlier prediction of a $20 per barrel bottom for oil, and sees 32 million barrel per day (bpd) production from the Organization for Petroleum Exporting Countries (OPEC) in 2016, CNBC reports.

The investment bank notes in its December monthly report that the $20 bottom is the break-even point for high-cost shale producers in the U.S.; as for OPEC’s anticipated output in the New Year, it will be driven partly by Iran’s resumption of production after the U.S sanctions against the country are lifted.

At $20 per barrel, along with the current relationship between Brent and bunker prices, Ship & Bunker data indicates that IFO380 in the primary ports could easily be expected to fall under$100 per metric ton (pmt).

However last week IFO380 in both Houstonand Rotterdam was around 52 percent of the pmt Brent price, and at that level $20 oil would put bunkers under $80 pmt.

Goldman analysts, in acknowledging that OPEC does not benefit from balancing the market in the face of growing higher-cost production, pointed out that despite the fiscal challenges low oil prices are currently causing, “the alternative of cutting production reduces long-term revenues instead.”

Meanwhile, the International Energy Agency (IEA) says the current seven-year low oil prices (Brent crude Friday closed under $37 per barrel) will result in North American oil production falling to 500,000 bpd in 2016, which Fatih Birol, executive director of the IEA, warns “may not be the best news from oil security point of view.”

However, Birol adds that the low prices may attract some demand: “[We] may well see some surprises in the next few years balancing the market, but with higher prices than we think for now.”

Societe Generale believes that a drop in stock build growth in the second half of 2016 will result in Brent crude climbing to $60 per barrel by the fourth quarter of next year.

Ship & Bunker last week reported that Margaret McQuaile, senior correspondent for Platts said, “OPEC’s failure to agree a ceiling at its recent meeting does not necessarily mean a big increase in output is on the cards.”