After countless oil price downgrades, analysts at Goldman Sachs have cut their outlook for the commodity sector as a whole.
Goldman downgraded commodities on Wednesday—including energy, metals, agriculture and livestock—to “underweight” from “neutral” on a 3-month basis.
“Despite the large declines in commodity prices, we see risks as still skewed to the downside over the near-term. Lower oil prices are also driving cost deflation across the broader commodity complex,” Goldman strategists led by Christian Mueller-Glissmann said in a research note.
The strategists forecast WTI crude oil prices would remain at around $40 per barrel for most of the first half of the year, which would “slow supply growth, keep further capital investment in U.S. shale sidelined, and
“We think the oil market is experiencing a marginal cost re-basement,” they said.
Mueller-Glissmann and colleagues forecast that “balance” would return to global oil markets by 2016 and they upgraded their 12-month view of the commodity sector to “overweight” from “neutral”.
“By the end of 2015, we see inventories closer to a neutral level and prices rising to the marginal cost of production, which we estimate to be US$65 for WTI and US$70 for Brent. However, the timing of normalizing inventories and prices remains highly uncertain, in part due to ongoing cost deflation in shale,” they said.
Barclays also revised down its forecasts for oil prices on Wednesday, in its second substantial revision in recent months. The bank now forecasts Brent and WTI will average $44 and $42 respectively over 2015. Less than two months ago, Barclays’ forecasts were $93 and $85 respectively.
Brent crude oil prices slipped to trade at $49 a barrel on Wednesday, pressured by the strengthening dollar. Oil prices were also pressured by an industry report showing a larger-than-expected rise in U.S. crude inventories.
Brent has fallen almost 60 percent since June last year. Earlier this month, it traded close to a six-year low of $45.19, and has since stabilized in a tight range just below $50 per barrel.
U.S. crude oil fell to $45 per barrel on Wednesday.