(MENAFN- ProactiveInvestors)Falling crude prices may have caused havoc in the oil services industry but the worst is yet to come according to Goldman Sachs. Oil companies have slashed investment jobs and profit forecasts as oil prices have fallen from more than US$100 a barrel late last year to less than US$50 a barrel now. Some brokers are optimistic about longer term prospects saying tightening oil supply is likely to underpin prices. Barclays said last week that it believed prices were likely to move higher in the latter half of next year prompting producers to mitigate the decline in existing supply. But Goldman Sachs said the third quarter of 2015 was likely to show signs of further deterioration and urged companies to stay cautious. It expects a "lower-for-longer" oil price and rebasing of consensus estimates to reflect the probabilty of further volume and pricing deterioration in 2016. 'Backlog cover for years beyond 2016 remains poor which suggests that in the absence of order intake the worst for the offshore service names is still ahead' the broker said in a note. Six-year lows Prices have fallen as Middle East oil cartel Opec and US shale producers have locked horns in a battle for dominance of the market daring their rivals to maintain supply amid rising costs. Edison Investment Research noted that the oversupply of the crude market had weighed prices down to six-year lows in 2015. But it forecast a market transformation led by sharp cutbacks in capital spending and recovering demand leading to firmer prices in 2016 and 2017. Edison analyst Peter Dupont said oversupply was nowhere near as loose as it was a year ago. He predicted fourth quarter average prices similar to those in the third quarter at US$50 a barrel for Brent crude and US$46 for West Texas Intermediate. A downward trend in US production was set to gather pace in coming months as companies slash capital spending. But any price upturn would be muted due to flexibility of US shale producers and Saudi Arabia's likely desire to avoid a major price surge handing market share to renewables and natural gas. 'Our 2017 price forecasts for Brent and WTI are $70/bbl and $66/bbl respectively' Dupont said. 'Over the balance of the decade this double constraint should hold firm and limit upwards price momentum.' Fit at US$50 Goldman said lower pricing and activity levels were likely to hit margins at those companies with asset-heavy business models at least in the short term. The broker said consolidation had started with recent acquisitions in the sector and more to come. Many companies had announced measures to reinforce their balance sheets but debt remained high especially for seismic specialists and offshore drillers. Some companies may need to launch rights issues in the next 12 months such as Seadrill PGS Odfjell Drilling and Saipem. 'We also think more asset write-offs/impairments are to come' the broker said. Among UK-listed firms Petrofac (LON:PFC) may benefit from attractive bidding levels in the Middle East. But Goldman is reducing its earnings per share estimates on Wood Group (LON:WG.) and 2015/2017 estimates for Amec Foster Wheeler (LON:AMFW). Earlier this week tax and accountancy firm PricewaterhouseCoopers said UK oil & gas companies could cash in to the tune of £20bn by brushing up their working capital management. Globally potential savings are said to total £217bn. Alison Baker oil and gas leader at PwC said companies needed to be "fit at $50" given no sign of an oil price rebound. 'In efficiently run businesses cash runs freely; in others cash gets trapped in working capital restricting the company's ability to grow" Baker said. 'Oil and gas firms are facing a future of low oil prices and as a result being cost-effective in a $50-$60 bbl world will be vital. "Every move they take to achieve this will be crucial in securing their long term survival.'
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