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Call of the week: Goldman admits getting call on oil wrong

Yahoo Finance’s call of the week is Goldman Sachs revising its bullish call on oil. It turns out that even top analysts don’t always get it right. The big bank has admitted it misread the oil market and is slashing its three-month forecast on crude to $47.50 per barrel. That is significantly lower than its initial target of $55 per barrel.

So how did Goldman Sachs get it wrong? The bank says the surprising rapid rise in U.S. shale drilling over the past month, as well as a rebound in production in Nigeria and Libya, have reduced the likelihood that inventories will normalize before the end of the OPEC deal. Goldman analysts Damien Courvalin, Jeffrey Currie, Henry Tarr, Huan Wei and Callum Brude wrote in a research note that these factors will likely cause oil to hover close to $45 per barrel until there is evidence of “a decline in the US horizontal oil rig count, sustained stock draws or additional OPEC production cuts.”

Despite Goldman’s more bearish tone on oil, the bank’s revised three-month target is still above the forward price curve. The analysts noted that they’re “cyclically bullish within a structurally bearish framework: the near-term price risks are now increasingly skewed to the upside while the low velocity deflationary forces of the New Oil Order are still at play.”

Although crude rebounded to a two-week high on Thursday, it’s on track to close the first half of the year in negative territory. Prices have dropped nearly 16% during the first six months of the year.