Tough Decision
If the Saudis are really in control, we will find out what they want really soon.
I think it's safe to say that the energy specialists are universally bearish on oil. Goldman published a report today noting that they expect global oil inventories to build 800 million bbls by the end of 2026. They are assuming that ~33% of that will be directed towards visible OECD oil inventories (270 million bbls).
As a result, they expect OECD oil inventories to reach near COVID-19 levels by the end of 2026.
This forecast would then translate into low $50s Brent by the end of 2026. For WTI, this would imply high $40s to low $50s.
If Goldman's analysis comes to fruition, energy stocks are extremely overvalued, as most companies will see free cash flow fall below zero. But not only would profitability decline, it would also translate to lower capex, lower production, and lower net present value on the stock. This death spiral would send energy stocks meaningfully lower.
But in all of the sellside reports we've read, there's one variable the community isn't pointing out: the Saudi variable.