Why Oil Could Fall To $20; And Why Saudi Arabia Will Emerge On Top
Avi Salzman posted a March 17, 2020 article to the financial news website, Barron’s, with the title above. Brent crude, as I write this note is trading below $30, at $29.14. And, with neither Saudi Arabia nor Russia likely to blink anytime soon, oilt is likely to fall even further. “There has apparantly been no progress in attempts to mediate between Saudi Arabia and Russia, with sources saying an OPEC+ meeting schedule for Wednesday of this week being called off, said Jack Allardyce, oil and gas research analyst at Cantor Fitzgerald Europe. “Neither side appears ready to blink in the short-term, with Saudi Aramco stating at an earnings call that it was likely to sustain higher output through May, and was ‘very comfortable’ with $30 oil.”
“That dynamic is likely to push the price of Brent crude down to $20 in the second quarter/2020,” according to Jeffrie Currie, the head of Commodities Research at Goldman Sachs. “He had previously had a $30 price target,” Mr. Salzman wrote. “Oil use is already down 8 million barrels per day, and supply is likely to increase by 3 million barrels per day at its peak Currie estimates,” Mr. Salzman added.
“Some analysts have predicted Saudi Arabia will eventually have to let oil prices rise, because the country’s budget is funded largely from oil proceeds and cannot be balanced until oil at least doubles.” Mr. Salzman wrote. “But, Currie expects Saudi Arabia to wait this out; and, actually emerge in a much stronger position a year from now.”
Perhaps both Russia and Saudi Arabia have forgotten the old Wall Street adage, “The market can stay irrational…..longer than you can stay solvent.” Maybe a crude awakening for both. RCP, fortunascorner.com