Daily Management Review

Oil Over Supply Forces Goldman Sachs to Cut Oil Forecast


09/11/2015




Oil Over Supply Forces Goldman Sachs to Cut Oil Forecast
Goldman Sachs cut its forecast for Brent and WTI crude through 2016 on the expectation that the glut will persist on Opec production growth, resilient non-Opec supply and slowing demand expansion on Friday.

While a price of $20 a barrel was not unlikely and could be adopted to clear the oversupply in case of a failure to reduce production fast enough. The cut in forecast was primarily based on the bank’s assumption of oversupply in the market in the months to come.

 “The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016. We continue to view US shale as the likely near-term source of supply adjustment,” Goldman analysts including Damien Courvalin wrote in the report on Friday.

From a projection in of $57 per barrel, Goldamn Sachs trimmed its 2016 estimate for West Texas Intermediate to $45 a barrel. The 2016 Brent crude prediction was also reduced to $49.50 a barrel from $62 a barrel.

The WTI for October is heading for a weekly decline as it fell as much as 45 cents, or 1%, to $45.47 a barrel on the New York Mercantile Exchange. The prices have declined to 14% in total I 2015. There was also a 1.7% decline in Brent for October in this week.

Amid signs the glut will persist, oil in New York has slumped more than 25% from its June closing peak. While Iran seeks to boost supply once international sanctions are lifted, leading members of the Organization of Petroleum Exporting Countries (Opec) are sustaining their crude oil output.  The US oil stocks too are 100 million barrels above the five-year seasonal average.

“We now believe the market requires non-Opec production to shift from our prior expectation of modest growth to large declines in 2016. The uncertainty on how and where that adjustment will take place has increased,” Goldman Sachs said in the report.

According to data from the Energy Information Administration, the US pumped 9.14 million barrels a day of oil last week, almost 3 million barrels above the five-year seasonal average. The production this year is still projected to be the highest since 1972 even as the EIA cut its 2015 output forecast for the nation by 1.5% to 9.22 million barrels a day.

For the last 15 months, Opec supplier of 40% of the world’s crude, has been producing more than the 30-million-barrel-a-day quota. Iran has already announced that once the international sanctions are lifted from over them, the country is going to add 1 million barrels a day to the global oil output in order to regain market share. 

Meanwhile according to the International Energy Agency, falling crude output from the United States, Russia and North Sea will see non-OPEC supplies decline to 57.7m barrels per day. The report said that the US shale oil production will fall by 0.4mb/d.

After climbing to a five-year high of 1.7 mb/d in 2015, the global demand for oil would remain above trend in 2016 even as it eases out a bit to 1.4 mb/d compared to 2015, said the report.
 
(source:www.digitallook.com & www.livemint.com) 






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