Oil deepened its weekly decline as Goldman Sachs Group said a global supply surplus could force prices to $20 a barrel. Futures fell after two weeks of gains. Goldman said yesterday the world’s oil glut is even bigger than it thought.
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 US 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, 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.”
While it’s 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 its report yesterday, while cutting its Brent and WTI crude forecasts through 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,” he said.
Goldman trimmed its 2016 estimate for West Texas Intermediate 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 will prolong the glut.
The bank also reduced its 2016 Brent crude prediction to $49.50 a barrel from $62. West Texas Intermediate for October delivery fell yesterday at one stage by $1.48, or 3.2%, to $44.44 a barrel on the New York Mercantile Exchange, down 3.4% in the past week.
Brent for October settlement lost $1.27, or 2.6%, to $47.62 a barrel on the London-based ICE Futures Europe exchange, down 3.9% in the week.
“People pay attention to what Goldman says,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.
“We now believe the market requires non-Opec production to shift from our prior expectation of modest growth to large declines in 2016,” Goldman said.
“The uncertainty on how and where that adjustment will take place has increased.”
For the global surplus to end by the fourth quarter of 2016, US output will need to decline by 585,000 barrels a day, with other non-Opec production falling by a further 220,000 barrels a day, Goldman said.
Saudi Arabia, Iraq and Iran will drive supply growth from Opec, Goldman said.
This group of countries, which supplies about 40% of the world’s crude, has produced above its 30-million-barrel- a-day quota for the past 15 months.
Iranian oil minister Bijan Namdar Zanganeh has vowed to increase output by 1 million barrels a day once sanctions are removed as the nation seeks to regain market share.
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