Goldman Sachs Lowers Forecast for Crude Oil
What’s Happened….
Last week Goldman Sachs cut its expected oil price range by $5 a barrel for 2025. They now anticipate crude oil to average $80 per barrel next year with a range of $70 to $85. Expectations for lower demand and more inventories were cited as reasons for the forecasted price reduction. The energy market wasted little time factoring this into lower prices, as futures lost nearly $5 per barrel.
Why this is Important….
From a producer’s perspective, this is not the type of news that you like to hear. However, from an end user’s perspective, this has provided a near-term drop in price of nearly 7%, and potentially a longer-term reduction for fuel expenses if the Goldman Sachs forecast is accurate. A word of caution here is that forecasts can and do change and markets are always dynamic.
From a bigger picture concern, unrest in the Middle East continues to be volatile daily. A recent attack by Israel inside Iran will likely lead to retaliation of some type. So far, none has occurred, yet it would be naïve to expect one will not occur. It is probably just a matter of time. This could escalate conflicts throughout the Middle East, implying higher energy prices.
Currently, crude oil prices are trading as low as they have all calendar year, close to $68 per barrel, down from a recent high of $81.75 on July 5. From a demand perspective, weaker prices are likely due to a wind-down of the summer driving season and shaky economy. Yet, winter is just around the corner, and some are suggesting the Northern Hemisphere could experience a cold winter, as the current El Nino weather pattern is expected to switch to a La Nina pattern. This could mean increased demand down the road, at a time when producers will likely be cutting back on production. The prospect of uncertainty in the Middle East remains high, and if additional fighting were to break out, this could also add to a rebound in energy prices.
What can you do about it?
An important role as a farm marketer/manager is to identify and shift risks as necessary. With the recent pullback in energy prices, now is the time to generate conversations with your advisor and supplier, asking how this can be accomplished. Call options can be viewed as safety valves against an unexpected price increase. There are costs associated with purchasing call options, which should be viewed as a cost of doing business and managing risk. The bottom line is to stay informed and connect with people who can help you strategize to meet your needs and achieve your goals.
Find out what works for you….
Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally charged responses to market moves, which are always dynamic.
About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.
Author
Bryan Doherty