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Oil Bears out in Force before the Weekend

Oil prices and rig counts alike fell on Friday, with the former falling by about 2% and the latter reaching its lowest level in more than a decade. A handful of factors weighed into the commodity price drop, spurred by Goldman Sachs predicting oil prices still have (much) further to drop before we find the speculative price trough.

Goldman believes oil prices could dive to $20/barrel in its worst case, citing rising storage and a market that is more oversupplied than previously believed. The note, titled “Lower for even longer,” says OPEC is not slowing down – rather, the cartel will pump even more in 2016 and the United States has somehow maintained somewhat steady production levels despite removing more than half of the rigs from operation. Global demand is also expected to slow in 2016 and beyond due to China’s economic slowdown and lower than expected consumption rates from Japan and India.

Saudis Standing Pat

Saudi Arabia, despite all the recent rumblings of its shortsighted market share plan, are dismissing claims of fellow OPEC members for an emergency meeting. A Saudi source told Reuters that it is unnecessary to interfere with oil market, and that a meeting with no concrete outcome with only negatively affect prices. “If we are meeting for the sake of a meeting, it would backfire,” the source said.

Russia is also not expected to bite the bullet on cutting production, according to Nordine Ait-Laossine, the former energy minister of Algeria. “Russia has assumed that when oil prices go down, OPEC countries are in a weaker position and are more likely to be the first to cut its production, and they always did,” the minister said in an interview with Bloomberg. The two sides participated in “an exchange of information” a few months ago.

President Obama wrapped up a meeting with Saudi leaders last week, with a joint release from the two parties calling the discussions “positive and fruitful.” The Saudis expressed support for the Iran agreement – possibly the largest wild card in the current oil market, while reiterating cooperation on addressing the extremist situation throughout the Middle East.

ECI Saudi Oil Economics

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