Goldman Sachs Group's commodity strategist foresaw it at the end of March before the negative oil price appeared. While others lamented unprepared "see you for a long time", the bank made a fortune.

In late March, Goldman Sachs Group crude oil strategist Jeffrey Currie shocked commodity traders, saying that the price of inland crude oil such as WTI could fall into negative value in the near future as demand for crude oil and gasoline plummeted, accompanied by a price war between Saudi Arabia and Russia. Jeffrey Currie's view is impressive so far because WTI crude really fell into negative territory 20 days after the release of its report, and Goldman Sachs Group's trading department apparently heeded this advice and was ready to make a lot of money.

Jeffrey Currie wrote in its March report:

The "immunity" of seaborne crude oil such as Brent to the outside world will be greatly improved, keeping it near the cash cost of $20 a barrel. Brent crude is on an island in the North Sea, 500 meters above the water, where it can be stored by tankers. WTI, by contrast, is inland, 500 miles from the water. The determinant of oil prices is not the number of wells, but based on logistics and access.

High-cost offshore crude oil can be easily stored on tankers (storage that we have never run out of in our history) and is in a better position than inland pipeline crude, just like crude oil from the United States, Russia and Canada. In 1998, when crude oil stocks broke through storage capacity for the last time, these inland crude oil were the hardest hit. As a result, the price of WTI inland or Canada's WCS may be negative, but the price of Brent crude is likely to remain around $20 a barrel. Xiaobai Maimai Inc restrictions on dollar financing also played a role in 2008 and during the crisis, which hampered oil owners' access to storage and transport capacity. We believe that the Fed's action last week mitigated this risk to some extent, but given the importance of oil in global trade, it itself creates dollar liquidity and affects the prices of other traded commodities. another sharp fall in oil prices could lead to more dollar shortages.

Under the background of the sudden drop in demand, the crude oil price war is meaningless, and it is difficult for the initiators of the price war to achieve the goal. Similarly, a reduction in crude oil production does not make economic sense. Not only does this cost OPEC oil-producing countries $2200 in revenue (at an average annual price of $60 a barrel), it is also unfriendly to shareholders and creditors of crude oil companies with high production costs.

Goldman Sachs Group estimates that crude oil companies have lost about $1 trillion in market value since 2016. The policy of reducing production is a strategic mistake, not only for OPEC+ countries, but also for all equity and debt owners in the industry. The question now is: can the United States and OPEC save the market? It is a fact that they have admitted that the demand shock has become so great that they cannot act alone. They say a balanced market will require a co-ordinated global production cut-a policy that currently seems impossible, too late to stop current inventories from rising, and far below other initiatives on the current agenda.

After the massive increase in supply, the speed of the recovery of oil prices depends on the total inventory. The market always encounters transport bottlenecks after running out of storage space. At present, the price of Canadian oil is close to $5 a barrel, the price of WTI crude is close to $13 a barrel, and Cushing's idle inventory is still only half. The faster the inventory is consumed, the more volatile the market will be, putting upward pressure on prices.

According to US media estimates, when countless institutions and retail investors are worried about negative oil price losses, Goldman Sachs Group roughly earned more than 1 billion US dollars. The media joked that, usually, investment banks' reports are for clients, while Goldman Sachs Group's crude oil trading did not ignore his own report and adopted the opinions in the report.

The media also dug up more details: the Qin Xiao of Goldman Sachs Group's Singapore office is in charge of the bank's commodity trading in Asia. At the end of February, US stocks hit record highs, but Qin Xiao sensed the risks of an economic downturn, and soon after, novel coronavirus became a global pandemic, and he began to lay out crude oil and other related commodities.

While Qin Xiao is based in London, Anthony Dewell correctly predicted the collapse of the WTI futures market in April, when storage tanks were full and prices soared to zero. The move triggered a wave of forced selling, with some wealth management products and crude oil funds designed without taking into account the possibility that prices could be negative.

The blockbuster deal is reminiscent of an era a decade ago, when Goldman Sachs Group's commodities division generated about $3 billion a year. But later, as these revenues declined, it lost people's favor and even faced the risk of being taken over by the current Goldman Sachs Group CEO team and questioning its necessity. In the end, the new management gave in, made modest cuts and publicly declared its support for the department. Given the return of more than $1 billion from this decision, the current Goldman Sachs Group CEO may reconsider the status of commodity trading in Goldman Sachs Group.