Submitted by Tyler Durden.
Translation: Goldman is now buying Brent from its clients, aka Goldman 101.
From Goldman's David Greely:
A cyclically tight, but structurally stable oil market
Over the past three years long-dated Brent crude oil prices have stabilized around $90/bbl. This suggests a return to the pricing regime that characterized the crude oil market in the 1990s when long-dated Brent crude oil prices were anchored at $20/bbl. OPEC spare capacity anchored long-dated prices in the 1990s, however, we expect that going forward long-dated oil prices will be anchored by the potential for substantial growth in crude oil supplies from US shale, Canadian oil sands, and the deepwater. Net, we see a return to a structurally stable, but cyclically tight market.
The Brent market: Cyclically tight, but structurally stable
Brent crude oil prices have traded in an increasingly narrow range, where they are high enough to motivate supply, but not so high as to undermine the global economic recovery. With increasing evidence that Brent crude oil prices in the recent trading range have been sufficient to restrain oil demand in line with available supply, and with an improving outlook for non-OPEC supply growth in 2013, we are lowering our Brent crude oil price forecast to $110/bbl in 2013 (from $130/bbl). However, we continue to expect the physical market to remain tight and the Brent forward curve in backwardation. Consequently, we maintain our near-term target at $120/bbl, and continue to recommend a long position in the S&P GSCI® Brent total return index, which would benefit from the backwardation.
The WTI market: The barrels are coming by land and by Seaway
WTI prices have traded at an increasing discount to Brent as the barrels at Cushing await the development of excess capacity to transport them to the US Gulf Coast. We still expect this excess capacity will be achieved when the Seaway pipeline ramps up from its current capacity of 150 thousandb/d to its full capacity of 400 thousand b/d in early 2013. In the meantime, the addition of substantial rail loading and unloading capacity in 2012 has created excess capacity to move Bakken crude to the coasts. With Bakken pricing above WTI, we would expect less Bakken crude to flow south into Cushing, which should help to keep Cushing inventories from building too much as BP’s Whiting refinery undergoes conversion for more heavy oil refining. Net, we expect the WTI-Brent spread to remain volatile in 2012, but to narrow to -$4/bbl in early 2013 as the Seaway pipeline reaches its full capacity. As the US Gulf Coast becomes saturated with light-sweet crude in 2H13, however, we expect LLS will need to trade at a $2.00/bbl discount to Brent in order to direct increasing amounts of Bakken crude by rail to the US East Coast instead of to the US Gulf Coast. This will likely cause WTI-Brent to widen to -$6/bbl by the end of 2013.
As for how Goldman's commodity reco's have fared in times past, here it is: