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Saudi Arabia triggers an oil price crash — Goldman Sachs warns $20 oil is possible

Brian Sozzi
·Editor-at-Large
·3-min read

Filling up that new gas-guzzling SUV is about to get a heck of a lot cheaper this spring.

Brent crude oil futures tanked as much as 31% to $31 a barrel on Sunday evening as Saudi Arabia ratcheted up pressure on Russia by slashing its list prices by the most in some 20 years. Saudi Arabia’s shock decision as talks on production cuts between OPEC and its allies ended unceremoniously on Friday.

Saudi Arabia’s decision to cut prices puts added pressure on an oil market already reeling from a global economic growth slowdown at the hands of the coronavirus outbreak. West Texas Intermediate crude has plunged about 48% year-to-date. That has put immense pressure on the share prices of oil majors such as Exxon and Chevron as well as drillers like Transocean.

Goldman Sachs is now out with a dire warning: $20 a barrel oil.

“The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus. This is the equivalent of a 1Q09 demand shock amid a 2Q15 OPEC production surge for a likely 1Q16 price outcome. As a result, we are cutting our 2Q and 3Q20 Brent price forecasts to $30/bbl with possible dips in prices to operational stress levels and well-head cash costs near $20/bbl,” Goldman Sachs oil strategist Damien Courvalin said in a note to clients.

Added Courvalin, “This completely changes the outlook for the oil and gas markets, in our view, and brings back the playbook of the New Oil Order, with low cost producers increasing supply from their spare capacity to force higher cost producers to reduce output.”

3D rendering of pump jack in an oil field
3D rendering of pump jack in an oil field

The dive in oil prices weighed heavily on equity futures Sunday evening. Dow Jones Industrial Average futures crashed nearly 1,000 points as of 6:03 p.m. ET.

“There's always winners and losers in any market, but right now the idea that lower gasoline prices is going to put more cash in workers' pockets and give consumer spending and the economy a boost doesn't seem to cushion the blow for stock market investors. They want out. Big time. The sky is falling. Get out, get out while you can. Wall Street's woes have to eventually hit Main Street's economy hard. Bet on it,” warned MUFG chief financial economist Chris Rupkey.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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