Why Goldman Sachs Might Be Wrong In Expecting Crude Oil To Fall Again

WTI crude broke the $60 barrel mark recently. However according to a note published by analysts at Goldman Sachs the rally in crude might have extended itself and the prices will correct soon.

Ken Sill of Global Hunter Securities was on CNBC to discuss why he thinks analysts at Goldman might be wrong.

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$70: The Equilibrium

“We think that oil below $50 probably overcorrected to the downside,” Sill said. “We know we don’t need $100 per barrel and 1,600 oil rigs drilling in the United States, but somewhere between $50 and $100 is and we think $70 is kind of where the market will ultimately equalize around, but it’s going to go up and down, but we think $60 plus or minus five bucks is kind of where the market seems to want to be.”

Production To Start Falling

Sill was asked where in the world he sees oil production going down: “The U.S., if it hasn’t rolled over already is getting ready to. I mean, you have taken the U.S. rig count down by more than 50 percent. So we think production in the United States is going to start falling.”

“We're not big bulls on oil rising rapidly from here, partly because Saudi Arabia is apparently taking share, not a lot of people talking about that and if Iran comes into the market that pushes recovery in oil prices to a higher level further back, but the U.S. doesn’t really work at below $50 a barrel. The oil sands don’t work for any new oil sands project below $70-75.”

“So, we just don’t think there is enough production growth out there once you finish Saudi’s taking of share and if there is a deal with Iran, Iran will have to come into the market, but that pushes an oil price recovery up towards $70 back by 12 to 24 months,” Sill concluded.