By John Richardson
OUR blogs are awarding themselves a pat on the back today. The reason is that investment bank Goldman Sachs, the largest player in commodity markets, has completely reversed its analysis of oil markets. They now accept our view, and that of the blog we work with very closely with, Chemicals & The Economy, that there is no fundamental reason for oil prices to be at today's high level.
The issue was discussed at length in a January 2011 ICIS White Paper, Budgeting for Uncertainty, and we have supported this view ever since. It has sometimes been a lonely position, as Goldman's voice is very strong in the markets. However, on Thursday of last week, Goldman revealed they had changed their mind, when they announced:
"The US shale oil boom, which saw the country's oil production rising to multi-decade highs, caught many industry watchers and specialists by surprise and has dramatically reshaped the global oil flows over the past few years."
By coincidence, Paul Hodges has published another article on the subject in ICIS Chemical Business, which includes the sentence:
"In oil markets, there have been no major shortages of product on the scale of the 1979 OPEC embargo, or similar, to cause prices to rise. And production has actually been rising. US output, for example, has reversed years of decline, and is now back at 1996 levels. Similarly, inventories in the US and elsewhere have often been at near-record levels."
We have attempted to keep our readers ahead of the game, including our prediction of a China slowdown which we first made in April 2010 and followed up with numerous other warnings, including this post in January 2011.
We further flagged up the risks in chapter 6 of our book, Boom, Gloom & The New Normal, published in October last year.