SINGAPORE: Oil prices will remain “lower for longer” after forward prices, commodity currencies and energy equities reached levels not seen since 2005, Goldman Sachs on Thursday.

Analysts at the bank argue that the economic environment for the oil industry. “These differences reflect not only a further deterioration in fundamentals, but also the financial markets’ decreasing confidence in a quick rebound in prices and a recognition that the rebalancing of supply and demand will likely prove to be far more difficult than what was previously priced into the market,” Goldman Sachs said.

While supply and demand will likely find a balance between now and sometime in 2016, a sharp rebound in prices will not occur quickly as so many other factors will likely weigh on prices, Goldman analysts led by Jeffrey Currie said.

The investment bank has long maintained a bearish outlook on crude prices. In May, it forecast that US crude futures would trade at around $45 a barrel by October. Opec members continued to pump crude at record rates in July and US shale oil production showed no sign of abating as drillers added more rigs in the past two weeks.

“As shale has dramatically reduced the time between when producers commit capital and when they get production from several years to several months, oil prices now need to remain lower for longer to keep capital sidelined and allow the rebalancing process to occur uninterrupted,” analysts said.

The bank maintains its near-term target for US crude at $45 a barrel, but warns that risk is skewed substantially lower. Crude prices have tumbled by more than 20 per cent in the past month due to a supply glut.

A landmark nuclear deal struck between Tehran and world powers has sparked concerns of more Iranian oil returning to global markets and worries about fuel demand growth has also dragged down oil prices.

Bank of America Merrill Lynch in July said oil prices could drop further due to demand weakness, a strengthening dollar and most importantly on the oil market glut, which it expects to average one million barrels per day over the next 18 months. Oil traded near multi-month lows on Thursday with Brent at below $50 a barrel while WTI was down 0.86pc at $44.76 at 1110 GMT.

Published in Dawn, August 7th, 2015

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