Crude Oil And Gold Pressured Ahead Of FOMC Meeting
$OIL, $USO, $UNG, $GLD, $GS, $BHI
Friday, Crude Oil prices fell Friday following a very pessimistic report by Goldman Sachs (NYSE:GS)
This overshadowed the rather upbeat estimates by the Paris-based IEA. Crude Oil had shown range-trading over the week but the front-month contract ended the week around 3% lower.
Goldman warned that huge Oil supply might drag Crude prices down to as low as 20 bbl. It now forecasts WTI Crude Oil price to reach 45 bbl for Y 2016, down from 57 projected in May.
It forecasts Brent Crude Oil would reach 49.5 bbl for Y 2016, down from May’s estimate of 62 bbl. In its latest report, Goldman noted that “the Oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in Y 2016. Forward demand expectations are lower as the emerging market economic outlook continues to deteriorate”.
On the contrary, IEA has upgraded its global Crude Oil demand forecasts and cut US output estimates.
Global demand is expected to rise +1.7-M BPD this year and then by +1.4-M BPD in Y 2016, both are +0.2-M BPD higher than previous estimates.
On the supply side.
The IEA indicated that non-OPEC supply might dive nearly -0.5-M BPD, the biggest decline in more than 20 yrs, in Y 2016. According to the agency, “lower output in the US, Russia and North Sea is expected to drop overall non-OPEC production to 57.7-M BPD. US light tight (shale) Oil, the driver of US growth, is forecast to shrink by -0.4-M BPD next year.”
Earlier in the week, US’ Department of Energy (EIA) cut its global demand outlook for 2015-16.
In its Short-term Energy Report, the agency forecast that global oil consumption would grow by -1.2-M BPD and +1.3-M BPD in Y’s 2015 and 2016 respectively.
Note: the consumption growth for Y 2016 was revised lower by almost -0.2-M BPD from a month ago as “China and other Asian economies continue to show signs of weakness.”
On a positive note
The EIA forecast total US Crude Oil production fell -0.14-M BPD in August from a month ago. It also expected Crude Oil production to fall further through mid-2016 before growth resumes late in Y 2016. The EIA also lowered its US Crude Oil production estimates to 9.2-M BPD for Y 2015 and 8.8-M BPD for Y 2016, both were -0.1-M BPD lower from the prior estimates.
Baker Hughes (NYSE:BHI) reported that the number of Gas rigs dropped -6 units to 196 in the week ended on 11 September. In terms of drilling types, directional rigs dropped -4 units to 81, horizontal rigs fell -11 units to 648 and vertical rigs dropped -1 unit to 119 units. The total number of rigs steadied at declined -16 units to 848 during the week.
Gold fell for a 3rd straight week with the benchmark COMEX contract falling to the lowest level in a month and pressing 1 100 oz.
Trading volume declined as participates await the September FOMC meeting. While speculations of a Fed funds rate hike this month greatly diminished following the financial market volatility last month, Economists’ survey suggested that a 50-50 split for a tightening during the upcoming meeting. A new survey shows a 24% of rate hike as of 11 September. The uncertainty remains and traders of Gold (GLD) preferred to stay quiet ahead of the event.
Have a terrific week.
HeffX-LTN
Paul Ebeling
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