The global surplus of oil is even bigger than Goldman Sachs thought and that could drive prices as low as $20 (R270) a barrel.
While it is not the base-case scenario, a failure to reduce production fast enough may require prices near that level to clear the oversupply, Goldman said in a report on Friday while cutting its Brent and West Texas Intermediate (WTI) crude forecasts to 2016.
“The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016,” Goldman analysts including Damien Courvalin wrote in the report. “We continue to view US shale as the likely near-term source of supply adjustment.”
Goldman trimmed its 2016 estimate for WTI to $45 a barrel from a May projection of $57 on the expectation that Opec production growth, resilient supply from outside the group and slowing demand expansion would prolong the glut. The bank also reduced its 2016 Brent crude prediction to $49.50 a barrel from $62.
Germany’s Commerzbank also lowered its price forecasts on Friday, saying Brent was likely to trade at $55 by the end of this year before rising to $65 by end-2016. “It will take time to get rid of the oversupply,” Commerzbank senior oil analyst Carsten Fritsch told Reuters Global Oil Forum.
Tumbled
Oil tumbled in New York, capping a weekly decline after Goldman Sachs comments.
Oil has fluctuated since slumping below $40 a barrel three weeks ago as concern over slowing growth in China fuelled volatility in global markets.
A Senate vote paved the way for President Barack Obama to ease financial penalties for doing business with Iran, which would allow an increase in the nation’s oil exports. US stockpiles continue to rise, even as production slows.
“The news out there is negative,” says Michael Hiley, the head of over-the-counter energy trading at New York-based LPS Partners. “We are stepping closer to the Iranian deal. Opec is pretty much saying that they are not going to change their production. The market is trying to find a trading range.”
Iranian exports
The Paris-based IEA forecast that production outside Opec will fall by 500 000 barrels a day to 57.7 million in 2016.
While fuel demand this year would be the strongest since 2010, record-high oil inventories in developed nations would not start to diminish until the second half of 2016, and the revival of Iranian exports with the removal of sanctions might swell supplies further, the agency said.
Iran, Opec’s fourth-biggest member, has vowed to boost output to regain market share once sanctions are lifted. Opec and other oil-producing nations would respond to a request by Venezuela that the supplier group meet to try to stabilise crude prices, Qatar’s Energy and Industry Minister Mohammed Al Sada said last week.
BLOOMBERG AND REUTERS