Goldman Sachs Warns Against Long-Term Oil Investments: Linn Energy LLC, Murphy Oil Corporation, Chevron Corporation
Goldman Sachs has downgraded its outlook on the oil sector from Neutral to Cautious in light of the deceleration of oil prices. Downgrades include Linn Energy LLC (NASDAQ: LINE), Murphy Oil Corporation (NYSE: MUR), and Chevron Corporation (NYSE:CVX) among others.
Oil prices began to fall dramatically this summer, bottoming off just shy of $50 a gallon in January. The price of crude oil has been slowly climbing back up since March following estimates that oil supply and demand would balance each other out once again.
However, the sector remains tumultuous and is easily impacted by several factors. Recently, oil prices dropped as a result of record-high oil exports in Saudi Arabia, slow economic growth in Asia, excess capital access, and OPEC’s reluctance to alter production quotas. Coupled with the strong U.S. dollar, these events have had a sizeable impact on oil prices.
Goldman Sachs increased its estimate for Brent crude oil from $52 to $58 for this year. However, Goldman lowered its long-term estimates to $60-$65 between 2016 and 2019, and added that it will fall to $55 in 2020. The long-term bearishness in the oil sector will put "significant pressure" on oil companies, which Goldman warns will "[force] a rethink on dividends."
Analysts at Goldman Sachs were not surprised by the deceleration in oil prices as they downgraded the entire industry. The firm pointed to a shrinking oil supply in the North Sea and noted, "We find that the global market imbalances are in fact not solved and believe that the rally will prove self-defeating as it undermines the nascent rebalancing."
Goldman Sachs continued, "Despite the perception of improving fundamentals," the oil market is "still well oversupplied through 2016." The firm believes that global oil demand will be filled through U.S. shale, which is "continuing to benefit from efficiency and productivity improvements."
Several Goldman Sachs analysts downgraded oil stocks yesterday in light of the firm’s update. Theodore Durbin downgraded Linn Energy LLC from Neutral to Sell. Durbin has rated Linn Energy 5 times since November 2013. Over a three-month horizon, Durbin has a 65% success rate recommending stocks with a +5.3% average return.
Separately, Brian Singer downgraded Murphy Oil Corporation from Neutral to Sell yesterday. Singer does not have an average return for MUR since he only issued one Neutral rating. When measured over a three-month horizon, Singer has a 67% overall success rate recommending stocks with a +4.6% average return per rating.
Additionally, Neil Mehta downgraded Chevron Corporation from Neutral to Sell. Like Singer, Mehta does not have an average return recommending Chevron because he only issued one Neutral rating on the stock. Mehta has a 64% overall success rate recommending stocks with a +5.6% average return when measured over a three-month period.
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Nice posts but I'm more concerned about Goldman Sachs. Who's warning against them :)
With a former CEO that made plenty from CDOs became key guy for the financial sector for the US government and arranged bait out for AIG, GS and the rest, with questionable conditions. Whereby it is okay to run the company to bankruptcy as long as there personal gain. A organization whereby screwing their clients for own gain is a norm and will not be prosecuted. Why would investors need to be worry? This is the best type of company....
Analysts has been downgrading oil companies and paint a groom picture from oil with oversupply. Somehow remind me the CDOs era again. Yet over the first half of this year since oil drop to USD 40plus, many had came come out with their report only after the drop, not before, including GS. Oil price since climbed to the level of USD60plus. It is not surprising that GS and certain hedge funds are shorting oil heavily. At least they are consistence in their direction, unlike what they did with CDOs. It's difficult to trust a report from source that screwed their own clients, while making billions taking position against them. While this report was made, short selling percentage against oil companies was dropping. Someone running out of bullets, hence the reports? If there so much oil available, yet major deals like those between China and Russia are signed. Germany are talking to Iran about oil before any agreement is agreed with US and the rest to remove the embargo. Why not wait if there are over-supplied of oil source or oil? It just seem that the group that had been yelling oil drop, their biggest concern is oil price and oil companies keep raising.
The only thing I will advise investors, with regards to any investment, stay with the fundamental and base your investment judgement on facts and actual numbers, at least it is a clear decision, may or may not be right, as no one can tell the future.