Goldman Sachs: Oil Outlook for Autumn Bearish

Bloomberg

Watch Goldman Sachs: Oil Outlook for Autumn Bearish - Bloomberg on Dailymotion

Transcript

00:00I think it's a difficult oil market that we're in because on one side, we are going into peak

00:06seasonal demand with a strong geopolitical risk and inventories at the low level. This is why

00:13I think we continue to see the oil prices spike on this news. But if we take the luxury of looking

00:19out three, four months, as we look to October, November, we are going to have the inventory

00:24impact of all of the OPEC increases, which we haven't seen yet in inventories. We are going

00:30to get a low in seasonal demand. We will continue to see non-OPEC growth because one of the things

00:36we observe is that so many big projects are ramping up. All of the projects that had investment

00:41decision pre-COVID were delayed and now coming on stream. It's like the last hurrah for a lot of

00:46countries from a production perspective. And we think that builds up a very, very bearish outlook

00:53for oil as we look into autumn. Yeah. Michele, what's very bearish? Is there a kind of level

01:00to which a lot of the Gulf nations will have to do something about it?

01:04I think absolutely. I think if we cross down below $60 per barrel and we approach $50, we think that

01:13is the level where OPEC will most likely pause the production increases. And this brings us back to one

01:18of the problems we're seeing at the moment, which is circularity. So as long as oil remains in the

01:23high 60s, it's giving a clear incentive to OPEC to continue to go for production increases and market

01:30share. So most likely they will do another 400,000 barrels per day increase in August. And we will

01:35only see that in the October inventories. And by the time that happens, it will be seasonal low

01:42in demand. The inventories will build very quickly. And I think the price reaction will be quite abrupt.

01:49Michele, talk to me a little bit about what it means for LNG, for example. I mean, can LNG,

01:55pick up some of that? Do prices, some of them are linked, for example, in Qatar with the price of oil.

02:02Does LNG also suffer on the back of it? Without any doubt. And LNG has an added dynamic to it,

02:08which is an avalanche of production coming, really starting from D.C., but continuing for

02:13five years in a row with projects that have been committed and are already under construction.

02:18I mean, another read across from LNG is that, especially in three countries, the U.S.,

02:23Qatar and Saudi, the increase in gas production is coming with a lot of liquids-associated

02:29NGLs, which effectively, for all purposes, are oil equivalent. This by itself will grow

02:35liquids production by close to 500,000 barrels per day each year for the next five years,

02:40and that is independent of oil prices. That's, I think, another bearish driver for oil and another

02:47thing that links the bearish view on LNG with the bearish view on oil on a six to 12-month basis.

02:55Talk to me a little bit about ESG funds. I know you've argued in the past that actually energy

02:59companies that lead the energy transition should be a cornerstone of ESG funds and not seen as a

03:05hindrance or certainly not a divestment target. Has the space on that changed?

03:11No. I think too little has changed there. We are strong believers that we need more energy on all

03:18fronts, that oil demand will grow to the mid-2030s, gas demand will grow all the way to 2050. But in the

03:25meantime, renewable production is also growing fast, and we need companies who can manage risk

03:31for intermittency and seasonality. So I think the traditional integrated oil and gas companies that

03:36are really becoming energy companies, I think, should be a cornerstone of any investor's portfolio. Now,

03:42it may be difficult to own them if they share our view that oil may go down towards $50 per bar in

03:48the next three months, but that actually could be an amazing buying opportunity for these companies that are

03:53growing their business both in traditional energy and in some cases very successful in low carbon

04:00and renewable energy as well. Mikita, how do you see also the situation in China? We talk a lot about

04:08these tensions, these tariffs and the fact that it's really pitting the US against China. I mean,

04:12China had done quite a lot on energy transition. Does it double down given what's happening in terms

04:17of US policies? Or does it go the same way? I think they're doubling down. And this is not because

04:24of energy transition. This is because of energy security. They're doubling down on everything they

04:29can produce domestically. And that is batteries and solar for renewables and electrification. And that

04:37is coal for power generation. It doesn't really lead to a material decarbonization, unfortunately,

04:44but it certainly leads to a much safer energy production for them. And that's why I think

04:51they keep doubling down. And if the US no longer imports some of their cleantech equipment, I think

04:58they will keep exporting it to the rest of the world, including Europe.

05:03Mikile, talk to me a little bit about Europe and actually energy security. I know there's a lot of

05:07talk and I was speaking with Mario Monti about the fact that maybe there's not that much money in terms

05:12of defense spending or certainly not as much as the US wants, but where are they on energy security?

05:17How is Europe doing? So let me give you one good news and one question mark. So I think the good

05:23news is this avalanche of LNG that is coming on the market, I think is going to be brilliant for Europe.

05:30It is going to lead to gas prices, which in two years time, we think will be 50, 60% below where they

05:35are today. What good news. That's the energy crisis resolved. That's European heavy industry becoming

05:41competitive again. That is brilliant. The question mark is on tariffs, because at the moment, Europe

05:49has barely any tariffs on imports, for instance, on cleantech from China and therefore on batteries,

05:55on solar panels and increasingly on biofuels and wind. It's entirely dependent on imports. I think there

06:02is a serious question mark here as to whether that is the right industrial policy or whether Europe

06:07should think about tariffs. Again, we've done a carbonomics report focused on that, where we look

06:11at what tariffs would make local production of this cleantech competitive with China. And clearly,

06:17that would require a big change in industrial policy.

Category

Transcript

Be the first to comment

Recommended