Oil to stay lower for longer; Chinese demand growth to slow - Goldman

Tue Jan 27, 2015 11:33am EST
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By David Sheppard

LONDON (Reuters) - Oil prices will stay lower for longer after more than halving since June, Goldman Sachs' (GS.N: Quote) chief commodity analyst said, arguing in his latest research note that demand growth in China and other emerging economies is set to slow.

Goldman's Jeff Currie, who rose to prominence forecasting oil's spike above $100 a barrel last decade, said the rise of U.S. shale output had realigned energy markets, making China a bigger and more important consumer than the United States.

"For the first time since the 1940s, the U.S. is no longer the world's largest (oil) importer," Currie wrote in the note dated Jan. 26, which is part of the bank's 'Top of Mind' research series on macroeconomic trends.

"It has ceded that dubious position to China, which with other emerging markets is now forced to pay up for the last barrel of oil it needs from the rest of the world. As a result, gone are the days of surging EM (emerging market) oil demand."

The bank, which is arguably the most influential in commodity markets, had already slashed its energy forecasts two weeks ago to predict Brent crude LCOc1 may fall below $40 a barrel and average just over $50 this year.

He said in this week's note that the oil crash may be the most "startling and far-reaching market development" since the financial crisis, adding that even if oil prices recover from their recent lows they were unlikely to rebound back to levels at the start of this decade.

Brent hit an all-time high above $147 a barrel in 2008. It averaged around $110 a barrel between 2011 and 2013 as supply disruptions helped mask the impact of the U.S. shale boom.

"A new equilibrium price will ultimately be found, which will likely be much lower than the price over the past decade," Currie wrote.   Continued...

An offshore oil platform is seen in Huntington Beach, California September 28, 2014. REUTERS/Lucy Nicholson