Markets
BP

The Zacks Analyst Blog Highlights: Goldman Sachs, Exxon Mobil, Chevron, BP and Royal Dutch Shell

For Immediate Release

Chicago, IL - September 15, 2015 - Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Goldman Sachs Group Inc. ( GS ), Exxon Mobil Corporation ( XOM ), Chevron Corporation ( CVX ), BP plc ( BP ) and Royal Dutch Shell plc ( RDS.A ).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free .

Here are highlights from Monday's Analyst Blog:

$20 Oil Possible, Says Goldman Sachs

How many times must oil prices fall before producers check the glut? (The answer, my friend, is blowing in the wind.) The Goldman Sachs Group Inc. ( GS ) has predicted a level as low as $20 a barrel.

Before figuring out the basis of this forecast, let's first see that how the commodity entered into this prolonged bearish territory.

During 1990 and early 2000, the U.S. was more dependent on crude imports, as domestic demand was far above its conventional oil supply. But with the invention of new techniques like hydraulic fracturing and horizontal drilling, U.S. shale producers ramped up oil production relentlessly. Eventually, owing to its huge scale of crude output, U.S. started relying less on oil imports.

The shale boom turned the U.S. into an oil surplus economy from a crude deficit region. Along with the U.S., the Organization of the Petroleum Exporting Countries (OPEC) also pumped up more crude. All these events led to a global oversupply of the commodity and pushed oil to its multi-year lows. West Texas Intermediate (WTI) crude closed at $44.63 per barrel yesterday, more than half the price of the commodity during the mid-2014 level.

The fall in oil prices had a direct influence on the fate of the oil producing players. Even now, the prime players are struggling to withstand the weak crude pricing environment that has lasted for more than a year. Considering year to date, the share price of the likes of Exxon Mobil Corporation ( XOM ), Chevron Corporation ( CVX ), BP plc ( BP ) and Royal Dutch Shell plc ( RDS.A ) are down 21.4%, 32.4%, 18.7% and 24.9%, respectively.

Why $20 per Barrel?

What's more surprising is that in spite of soft pricing, the U.S. shale producers and OPEC continue to produce more of the commodity for fear of losing their market share. Most importantly, when the energy market had pushed the cartel to cut output last November, it had clearly refrained from doing so.

The situation has boiled down to a price war between the Saudi Arabia-led OPEC and the U.S. players. In fact, this cold war reflects Saudi Arabia's intention to kick the oil producers that are struggling to stay afloat amid low commodity prices out of the market.

Now while no one really knows how much pain is in store for oil prices, Goldman Sachs portended that the battle may well continue til the commodity touches $20 per barrel. Below that price, some U.S. shale-oil producers will not be able to recover their operating cost and will eventually be forced to stop pumping.

All we can say now is that a production cut from the U.S. shale players is most needed. It is good to know that The International Energy Agency (IEA) is anticipating U.S. oil production to decrease by 400,000 barrels a day in 2016 as the shale players might soon slip on low crude prices.

Most importantly, the declining U.S. oil production trend has already started this year. This was revealed in the short-term energy outlook of the Energy Information Administration (EIA) which provides official energy statistics from the U.S. government. Per this outlook, August oil production declined by 140,000 barrels a day from the prior month.

Consequently, with declining U.S. crude oil production, Saudi Arabia has a high chance of winning the price war and defending its market share. This is validated by a steadfast OPEC which has not given any indicating of reducing its crude output.

Bottom Line

Since U.S. shale producers contributed the most to the oversupplied crude market, a massive decline in domestic oil production is called for. However, if IEA's prediction to comes true and oil prices finally trend upward again, the table will turn for the U.S. upstream giants. Backed by their inventories, they will then make handsome profits to lower huge debt piles and strengthen financial statements.

Until then, between $20 a barrel and the IEA prediction, it's anybody's guess.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today . Find out What is happening in the stock market today on zacks.com.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

GOLDMAN SACHS (GS): Free Stock Analysis Report

EXXON MOBIL CRP (XOM): Free Stock Analysis Report

CHEVRON CORP (CVX): Free Stock Analysis Report

BP PLC (BP): Free Stock Analysis Report

ROYAL DTCH SH-A (RDS.A): Free Stock Analysis Report

To read this article on Zacks.com click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

BP XOM GS CVX

Other Topics

Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More