American multinational investment bank and financial services company, Goldman Sachs has projected that the Organization of Petroleum Exporting Countries(OPEC )will regain its position as a dominant force on international oil markets after the world emerges from the current oil crisis.
This was contained in a report titled “Top Projects 2020 ” projected by Goldman Sachs analysts. Highlights from the report published by Forbes indicate that plummeting prices and skyrocketing supply are some of the dynamics shaping the forecast.
The report underlined the fact these estimates have been directly responsible for some of the development in the oil industry within the last few months:
“Under-investment in oil and increasing focus on returns, deleveraging, free cash flow and ongoing capital discipline are taking a toll on oil resources life,” the bank’s analysts”, said as quoted by Forbes Tim Treadgold.
This, according to them signals that there is the prevalence of so-called stranded assets which implies assets that are uneconomical to exploit. Experts warn that these forecast should be taken more seriously.
Similarly, in 2014, Goldman had predicted in its report, that the Oil industry was witnessing shrinking investments in new exploration that would eventually lead to a tighter supply. But at the same time, the industry was under pressure from shareholders for higher returns on investment , and a cleaner carbon footprint.
This could likely change their spending habits in the long run. “Our Top Projects bottom-up analysis shows that we have entered a structural phase of no non-OPEC growth, driven both by a thinning pipeline of megaproject deliveries and a slowing pace of U.S. shale growth,” they wrote.
“This new phase, adjusted for curtailments, comes in 2021, seven years after peak oil prices, as it did in 1987, seven years after the 1980 oil price peak”, the report further stated.
In a series of parallels with the 2014 oil price crisis, Goldman also notes that these developments will lead to a consolidation in the industry, notably in U.S. shale, which has been the main driver of non-OPEC oil production growth in recent years. When this production stops growing so fast because shareholders want their returns, and when large-scale projects get shelved because they cost too much to develop, OPEC will rise again, according to the authors of the report.