Posthaste: Oil could hit $55 by 2021, but not before the industry sheds its worst — and landlocked

Good Morning!

Oil could hit US$55 by 2021, says Goldman Sachs, but not before absolute carnage in the broken market.

As U.S. crude fell before US$20 per barrel, Goldman Sachs offers a glimmer of hope.

The Wall Street bank says the production shut ins could push oil prices above its target of US$55 by 2021.

“Brent crude will likely stay near cash costs of $20 a barrel with temporary downward spikes as waterborne varieties are better positioned compared with landlocked oil in the U.S., Canada and Russia that’s sitting behind pipelines, Goldman said, according to a Bloomberg news report. “Shut-ins will be not be based upon where wells sit on the cost curve but rather on logistics and access,” it said.

“If pipelines get clogged up as refineries shut down, inventories cannot build, reducing the cushion and creating a very quick risk reversal towards oil shortages,” Goldman said in a note.

This could lead to an oil shortage, pushing prices above its previous forecast of US$55 by 2021.

“This will likely be a game changer for the industry,” the bank noted.

“Big Oils will consolidate the best assets in the industry and will shed the worst … when the industry emerges from this downturn, there will be fewer companies of higher asset quality, but the capital constraints will remain,” Goldman Sachs analysts said.

While the Saudi-Russia price war is a factor, the losses in oil demand is a far more important price driver, says Rystad Energy, which expects to see further downwards revision to its 16 million bpd oil demand loss estimate for April.

“The oil market supply chains are broken due to the unbelievably large losses in oil demand, forcing all available alternatives of supply chain adjustments to take place during April and May: Onshore product storage surge, refinery run rate cuts globally, massive increase in floating storage deals and upstream supply shut-ins,” Rystad’s head of Oil Markets Bjornar Tonhaugen said.

Here’s what you need to know this morning:

The Prime Minister will address Canadians on the COVID-19 situation in Ottawa
In Toronto, Dr. David Williams, Chief Medical Officer of Health, and Dr. Barbara Yaffe, Associate Chief Medical Officer of Health, to provide update on COVID-19
Tele-news conference with UNITE HERE Canada union leadership to discuss the unprecedented economic impact of the COVID-19 crisis on workers nationwide in industries as diverse as hotels, stadiums, airlines and food service
In Victoria, Adrian Dix, Minister of Health, and Dr. Bonnie Henry for an update on COVID-19

Canadian heavy oil prices plunged to a new low on Friday that could force domestic oilsands sector to shut in production to survive the historic collapse, according to a new report from Wood Mackenzie.

Energy research firm Wood Mackenzie believes higher cost oil-producing formations around the world would need to shut in production amid the oil price rout, unlike in 2014 when sub US$35 per barrel Brent oil prices lasted for only one quarter, writes Geoffrey Morgan.