Goldman Sachs: Be Prepared For The Next Phase Of The Oil Slump

In a new report, analysts at Goldman Sachs updated their outlook for the battered oil industry based on the latest crude inventories and rig count numbers. Analysts now feel that their previous forecasts for crude prices may have been slightly too bearish. However, they still believe that crude oil prices have a long road to recovery.
U.S. production peaking
Despite the recent unprecedented U.S. crude oil inventory levels, analysts predict that U.S. production levels will soon be peaking. Goldman’s rig-based production model indicates that crude oil inventories will likely peak in April and that the supply glut will then work its way from crude oil inventory into product surplus, which is typically the next phase of rebalancing in the oil market.
Not out of the woods yet?
While analysts see clear signs that the industry has begun its slow rebalancing process, they feel that the velocity of the declines in rig counts is not high enough to prevent another rise in U.S. crude oil inventories during refinery turnarounds coming in Fall of 2015. Analysts predict that U.S. crude oil production growth will continue to be too high throughout 2015 and 2016 based on productivity gains, increased operational efficiency, front-loaded shale well decline rates, rig count projections and the constraint of the export ban.
Outlook
Goldman analysts were slightly too pessimistic with their projected average Q1 WTI price of $46/bbl, as the actual average price for the quarter came in at $49/bbl. They now believe that there is “modest upside” to their prediction of $40/bbl average WTI during Q2 and also feel that their projection of $65/bbl average WTI in 2016 is likely “skewed to the downside.”
The market seems impressed by what it has seen from the oil industry as of late. Shares of the United States Oil Fund ETF USO have been on fire, trading up more than 10 percent in the last five trading days.