Goldman Sachs withholds more than $1 billion in revenue, taking advantage of the oil crash crisis

June 24, 2020 0

Goldman Sachs is considered one of the best institutions that benefited from the oil price crash crisis, thanks to the correct future reading of the markets Crude oil trading With his in-depth analytical insight and well-preparedness, Goldman Sachs' commodities desk generated more than $1 billion in revenue in the first five months of the year, marking its best start in a decade. Following the collapse of oil prices, specifically at the end of March, the head of the International Commodities Research Department at Goldman Sachs, Jeffrey Currie, expected oil prices to reach negative territory in the very short term, and he attributed his expectations to the sharp decline in oil consumption rates as a result of the extensive closures that took place. The countries of the world have imposed travel and aviation bans and sharply reduced trade exchange between countries, in attempts to limit the outbreak of the Corona virus pandemic, in addition to the large supply due to the short price war waged by the Kingdom of Saudi Arabia with Russia. Just 20 days later, Jeffrey Currie’s prophecy was fulfilled, and West Texas crude “May delivery” futures fell into negative territory for the first time in history at about -37 dollars a barrel, which amazed everyone and impressed investors because of the correct expectations in addition to that Goldman's trading desk took expectations very seriously and prepared them well, which helped in realizing those huge returns.
Cautious outlook for Goldman Sachs
Since the global financial crisis in 2008-2009, investments have moved away Goldman Sachs Commodities have been cut off due to their poor profits versus high costs, coupled with stricter regulation of investment banks' entry into deals. But with the start of 2020, the situation appears to be quite different, as the bank's international commodities division made huge returns, benefiting from the collapse in oil prices during March and April. Goldman Sachs' net revenue for the first quarter of 2020 was $2.97 billion from its fixed income, currency and commodities division, marking the highest quarterly performance in five years. Goldman Sachs expects oil prices to return to the bear market again and that the sudden rise in prices will end, noting that Brent crude fell to a price of $ 35 a barrel compared to its current price above $ 40 a barrel, and the bank said that the decline in refining margins to unprecedented low levels and the recovery Moderate demand rates are what will support the decline in prices in the long run, and the return of American and Libyan production will be a pressure factor on prices, which will harm the already faltering global economy.
Oil prices collapse and lose more than half of their value
The oil markets faced a difficult crisis, the largest in its history. In about three months, oil prices plunged from nearly $60 a barrel to less than $20, which is a devastating disaster, as the markets were subjected to double pressure, witnessing the largest drop in demand rates in the modern era, coinciding with With the price war carried out by Saudi Arabia and Russia. After the situation in the market worsened due to the struggles of major producers amid a real crisis in demand rates as a result of the Corona virus, the oil market faced another third crisis in a short time, which is the depletion of storage capacity. futures market.
Demand rates collapse and the market is flooded with cheap oil
The Corona virus pandemic has paralyzed the world and caused chaos in the oil markets, as global demand rates plunged at a relentless pace, losing more than 30 million barrels per day. To limit the spread of the virus, this increased investors' fears about the economic consequences of the Corona virus, which may be devastating to the global economy, which affected oil prices, which took a downward curve at a rapid pace. The OPEC Plus alliance called for a deeper reduction in production levels as a means of supporting oil prices and working to restore balance in the market, but Russia refused to participate, and instead of reducing production levels, the Kingdom of Saudi Arabia announced raising its production levels and flooding the market with cheap oil, causing oil prices to plunge by more than half of their value and trading at Almost $25 a barrel from levels at the beginning of the year above $60, which shocked many as the world faces the ferocity of the Corona virus epidemic, Saudi Arabia and Russia are igniting an oil price war between them.
The OPEC Plus agreement did not sufficiently support prices
Tensions subsided after OPEC Plus Meeting On April 9, Saudi Arabia and Russia struck a historic agreement to cut production levels by 9.7 million barrels per day under the auspices of the United States. Theoretically, the levels of reduction seem large, given the global consumption of 100 million barrels per day, but in light of the Corona crisis and the steady decline in demand rates, the impact of this reduction is no longer tangible and noticeable, as oil prices continue to decline, which reflects that these reductions are not enough. enough to reduce the wide gap between demand and supply. On April 20, West Texas crude futures “May delivery” plunged from $17.85 to -$37.63 a barrel, to lose more than 300%, recording the largest daily fall of US crude in history, due to the panic that investors had about how they received physical barrels of oil when storage sites reach

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Mohamed Abdel Khaleq

Professional technical and economic analyst in global financial markets since 2004, holder of an MBA from the American University in Cairo. He works as an economic writer and technical analyst for many international financial companies. He writes daily economic and technical analyzes for many Arabic and English websites specialized in the field of stock exchanges and financial markets.

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