Oil falls as Goldman cuts outlook while Venezuela seeks recovery
Oil falls as Goldman cuts outlook while Venezuela seeks recovery
By BEN SHARPLES and GRANT SMITH
MELBOURNE and LONDON (Bloomberg) -- Oil extended losses from the lowest level in more than five and a half years as Goldman Sachs Group reduced its price forecasts and Venezuela called on OPEC producers to work together to spur a recovery.
Futures slid as much as 3.1% in London after a seventh weekly drop. Crude has to “stay lower for longer” if investment in shale is to be curtailed to re-balance the global market, according to Goldman analysts. Prices need to return to $100/bbl for economic equilibrium, said Venezuelan President Nicolas Maduro.
Oil slumped almost 50% last year, the most since the 2008 financial crisis, amid a supply glut estimated by Qatar at 2 MMbpd. OPEC is battling a U.S. shale boom by resisting production cuts, signaling it’s prepared to let prices decline to a level that slows the fastest pace of American output in more than three decades.
“We are yet to see any material indications in fundamentals to support a rebound in crude prices,” Miswin Mahesh, an analyst at Barclays in London, said in a report. The “surplus is expected to expand” going into the second-quarter.
Brent for February settlement dropped as much as $1.56 to $48.55/bbl on the London-based ICE Futures Europe exchange and was at $48.82. The contract lost 85 cents to $50.11 on Jan. 9, the lowest close since April 2009. The European benchmark crude traded at a premium of as little as $1.41 to U.S. marker grade West Texas Intermediate, the least since Oct. 16.
Shale Investment
WTI for February delivery fell as much as $1.25, or 2.6%, to $47.11/bbl in electronic trading on the New York Mercantile Exchange. It decreased 43 cents to $48.36 on Jan. 9. Total volume was 65% above the 100-day average for the time of day.
WTI will trade at $41/bbl and Brent at $42 in three months, Goldman said in a report distributed today, citing excess U.S. storage capacity and predicting inventories will increase over the first half of this year. It also cut its price estimates for six and twelve months.
“To keep all capital sidelined and curtail investment in shale until the market has re-balanced, we believe prices need to stay lower for longer,” said Goldman analysts including Jeffrey Currie in New York. “The search for a new equilibrium in oil markets continues.”
‘Common Strategy’
Rigs seeking oil in the U.S. decreased by 61 to 1,421, Baker Hughes said Jan. 9, extending the five-week decline to 154. It was the largest drop since February 1991, which also followed a slide in prices before the start of the Persian Gulf War.
OPEC, which supplies about 40% of the world’s oil, needs to reach a consensus with other producers to “converge at a common strategy to benefit the oil market and stabilize the global economy,” Maduro said in comments broadcast on state television over the weekend.
The 12-member group decided to maintain its collective output target at 30 MMbpd at a meeting on Nov. 27. It’s competing for market share amid surging output in the U.S., where production expanded to 9.14 million a day through Dec. 12, Energy Information Administration data show. That was the highest level in weekly records that started in January 1983.
Oil won’t return to $100/barrel again, Saudi billionaire businessman Prince Alwaleed bin Talal said, according to USA Today.
“If supply stays where it is, and demand remains weak, you’d better believe it is going to go down more,” the newspaper reported him as saying.
