Oil fell a further 5% overnight to its lowest level in nearly six years, extending its seven-month long rout after Goldman Sachs downgraded its short-term price forecasts for the commodity. Brent crude oil plummeted 4.9% to US$47.65 a barrel in what is now the second-deepest rout on record.
As reported by Fairfax media, analysts at Goldman Sachs cut their three-month forecast for Brent crude oil and West Texas Intermediate (WTI) oil to US$42 a barrel and US$41 a barrel respectively, down from US$80 and US$71 a barrel. Meanwhile, it expects Brent crude to recover to around US$50.40 a barrel in 2015, while WTI should trade for around US$47.15.
Oil hasn't traded this low since 2009. While there are certainly positives to lower oil prices, the speed at which prices have fallen has wreaked havoc on energy companies around the world. Here in Australia, companies such as Senex Energy Ltd (ASX: SXY), Sundance Energy Australia Ltd (ASX: SEA) and Santos Ltd (ASX: STO) have lost 60%, 56% and 50% since the beginning of June 2014 respectively.
Not even BHP Billiton Limited (ASX: BHP) or Woodside Petroleum Limited (ASX: WPL) have managed to avoid the carnage with their shares down 24% and 14% in the same time. That compares to a 1.9% decline from the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
Unfortunately, there is no telling when the commodity will bottom out. While a number of analysts have suggested it will hit a low of US$40 a barrel, others have speculated it could fall to US$20 before we see a recovery. In an already oversupplied market, OPEC (a cartel-like organisation) has made it clear it will not cut production which could see prices remain low for some time yet. With no end in sight, investors would be wise to steer well clear of the energy sector until the outlook becomes much clearer.
