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Goldman Sachs Sees A New World Order Ahead In Oil Markets Amid Lost Decade

The oil market has changed rapidly over the past twelve months, and a new oil world order is ahead according to Goldman Sachs Group Inc (NYSE:GS).

In a research note issued this week, the bank laid out the eleven reasons why it believes the world is on the edge of a new order in oil markets.

A new oil world order

1) Spot prices have pushed to lows not seen since the financial crisis this week, and while the market has been focused on the moment at the front of the market, forward oil prices, along with commodity currencies and energy equities/credit have all slumped to levels not seen since 2005. These changes have created an extreme economic environment. Financial stress is higher; operational stress is more severe, and costs of production are sliding around the world, three factors that are only depressing the markets confidence in a quick rebound in prices.

"This is all in line with our lower for longer view. While we maintain our near-term WTI target of $45/bbl, we want to emphasize that the risks remain substantially skewed to the downside, particularly as we enter the shoulder months this autumn."

2) The shale oil industry has dramatically reduced the time to build -- the time between when producers commit capital and when they get production. It now takes months not years to get a well from the planning to production stages. As a result, the market is much more flexible that it once and oil prices will have to remain lower for longer before the industry shuts down capacity for good. Recent market moves support this trend. The rally in oil prices over the spring, saw all of the capital markets reopen to oil producers and producers began to redeploy rapidly rigs -- a reflection that the industry simply had not faced enough pain to create real change.

3) Financial metrics for the oil industry are far worse than they have been during previous downturns. Forward oil prices in relation to spot are the lowest in a decade, and industry hedge books are much lighter, with 2016 hedge ratios at 9% versus a five year average of 25%.

4) The current market structure of the oil industry is...