FXStreet (Delhi) – Research Team at Goldman Sachs, notes that OPEC oil ministers failed to reach an agreement to restrict oil supply at the December 4 meeting, driving WTI oil prices to multi year lows. Key Quotes “This is close to our commodities teams’ current 3-month forecast of US$38/bbl, after which they see oil prices rising to US$45/bbl and US$50/bbl over 6 and 12 months, respectively. However, in the near term they see more downside risks for commodities, including the risk of reaching storage capacity in the oil market– which could force spot prices to cash costs of around $20/bbl.” “The correlations of equities and US HY bonds, but and also the dollar with oil prices, has increased since mid-2014 due to the large and fast declines in the oil price. Initially this was due to investor concerns about demand and weaker global growth, but this year deflationary concerns and credit stress have taken over. The correlation has been similar to the GFC when oil prices declined sharply in anticipation of a global recession, dragging down risky assets.” “The US$/oil correlation has started falling and should continue to decrease. In the 2000s, high oil prices resulted in a positive correlation with the US$, as the US was running a large petroleum current account deficit. Until the GFC, increasing oil imports saw a widening US current account deficit, which put depreciation pressure on the dollar (appreciation pressure on oil-producer currencies), which, in turn, added further widening pressure on the current account deficit, causing additional dollar weakness. In 2008, when oil reached $147/bbl, EUR/US$ reached its high of 1.60 and the correlation between oil and the US$ reached peak levels. Owing to shale technology and lower oil prices the trade deficit has declined materially and as a result the US$/oil correlation should decline again.” For more information, read our latest forex news.