Oil Collapse a Sign of Global Demand Destruction and Recession
Here’s another recession indicator and then some. Goldman Sachs analysts on Sunday drastically cut their price targets for crude amid severe demand destruction with intense recessionary and deflationary implications.
This is the type of commodity deflation that is almost always only seen during times of acute economic distress, often culminating in, or coinciding with, recession.
Goldman Sachs commodity analysts on Sunday slashed their forecast for crude prices, after an alliance between Saudi Arabia-led OPEC and Russia collapsed late last week launching a new “price war” that threatens to deliver “acute financial stress” to shale drillers and other high-cost producers…
“The oil market is now faced with two highly uncertain bearish shocks with the clear outcome of a sharp price selloff,” the analysts said.
“We believe the OPEC and Russia oil-price war unequivocally started this weekend when Saudi Arabia aggressively cut the relative price at which it sells its crude by the most in at least 20 years,” the Goldman analysts said in a note…
How low could they go now? Goldman said the demand shock from the spread of the coronavirus was equivalent to that seen in the first quarter of 2009 amid the financial crisis, while the production surge was likely to be much like that seen in the second quarter of 2015 amid the last price war — setting the stage for “a likely 1Q16 price outcome.”