By Shuli Ren
Conspiracy theory has it that the U.S. and Saudi Arabia are working together to pull oil prices down to punish Russia.
No, that is not how Goldman Sachs see it – at least not paper.
The investment bank had an entertaining piece out this morning on OPEC‘s decision not to cut production to prop up slumping oil price. “The call on OPEC becomes the call on US shale.”
“Today’s decision came in line with our expectation and our view that it is not in OPEC’s interest to balance the market on its own but that US shale oil production should contribute as well, given its scalability,” wrote analysts Damien Courvalin, Jeffrey Currie and Anamaria Pieschacon.
At the Vienna meeting yesterday, OPEC made it clear that it would tolerate budgetary pain to maintain market share, so “prices could trade lower until evidence of a pull-back from US E&Ps, when they announce their 2015 capex guidance in January-February.” In other words, OPEC is telling U.S. to stop pumping out shale gas and we may see a sustained slump till next January.
But U.S. will take the hint and slow down production, and that “OPEC will implement moderate production cuts once this slowdown is apparent,” said the analysts. As such, they maintained their 2015 price forecast of $80-85 per barrel for Brent and $70-75 per barrel for WTI. Brent was recently trading at $72.45.
A very clear trading pattern emerged in Asia today. Airlines roared and energy companies slumped. Take the Hong Kong market for instance, China East Airlines (0670.HK/CEA) jumped 6%. China Southern Airlines (1055.HK/ZNH) advanced 6.1%. Cathay Pacific (0293.HK) rose 6.4%. On the other hand, China Oilfield (2883.HK) dipped 6.3%, PetroChina (0857.HK/PTR) fell 4.3%, CNOOC (0883.HK/CEO) slumped 5.7%. Sinopec (386.HK/SNP) fell 2.8%.