Crude continues slippery slide

January 12, 2015 02:07 PM

Anyone driving to work in the treacherous road conditions in the Northeast of the U.S. on Monday might have been forgiven for assuming that demand for heating oil, and therefore crude oil, would be up in response to the shivering temperatures. But the week for energy traders got off to a poor start as Goldman Sachs distributed a research note on why crude prices might stay lower for longer.

The impact was twofold – crude oil futures fell fast, with February WTI down by 4.5% to $46.14, and the positive start to trading stock markets as indicated by premarket futures quickly evaporated on the uncertainty created by the meaning of weakness in the energy patch. Goldman Sachs cut its year end forecast for Brent crude oil to $50.40 from $83.75 and its outlook for WTI from $73.75 to $47.15.

Chart – WTI less Brent spread

Doing the math means that the investment bank’s view on the WTI/Brent spread has cratered from $10.00 to just $3.25 by the end of this year. According to futures markets, we’re pretty much there already with the spread in the December contract already at $4.00. The Brent futures contract continues to fall faster than its WTI sibling as speculators ditch losing positions.

About the Author

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.