Investors sound the alarm after oil collapse

The latest collapse in the oil price has coincided with a report by Goldman Sachs, which estimates further falls in the current quarter to levels close to $42. The American investment bank has drastically cut its previsions and forecasts that OPEC countries will not cut production until the oil price falls below $40/barrel.

Market watchers at Goldman Sachs say that from those levels, there will be a rebound in the oil price. The result will be an average Brent price of $50 for 2015, far below the previous prevision of $83/barrel. The American investment bank also forecasts an average price of $70 for 2016.

Experts in raw materials believe that the oil price has collapsed because of over-supply when there was a strong fall in demand in many European and Asian countries due to weak economic performance. The rapid and continuing drop in oil has started to irk investors. They have sounded the alarm not because of the deflationary impact, also an important consequence, but because of the devastating effect that it may have on the public accounts of some producing countries. In order to achieve a balanced budget, countries such as Ecuador, Nigeria and Iran need a Brent barrel above $112, $124 and $136, respectively.

Oil companies are also somewhat concerned, especially the smallest in the sector. Firms such as Afren, EnQuest or Premier Oil may suffer high losses if the oil price remains below $60.

The oil price started to drop from the middle of last year, but the fall increased after the biannual meeting of OPEC, in which the producer countries decided to maintain production levels of around 30 million barrel per day. The Brent price has plummeted more than 55% since June 2014.

About the Author

Francisco López
Working for more than 25 years in the world of journalism and communications, Francisco has gained valuable experience at several well-known newspapers such as El Mundo and La Vanguardia. He specialized in economic and financial news before making the leap to the corporate communication sector where he has held several positions: Adviser to the Ministry of Economy, Director of the Bank of Spain’s Communication Department, in addition to his consultancy role at Analistas Financieros Internacionales, where he currently works.

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