The Global Surplus Of Crude Oil Is Larger Than Analysts Thought

The Global Surplus Of Crude Oil Is Larger Than Analysts Thought

$OIL, $USO, $GS

The global surplus of Crude Oil is even bigger than Goldman Sachs (NYSE:GS) thought and that could drive prices as low as 20 bbl.

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 a report Friday.

The bank cut its forecast for Brent Crude Oil and WTI Crude Oil through Y 2016 on the expectation that the glut will persist on OPEC production growth, resilient non-OPEC supply and slowing demand expansion.

“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 U.S. shale as the likely near-term source of supply adjustment.”

WTI for Oct delivery is down 73 cents, or 1.59%, to 45.19 bbl on the New York Merc as I write this, and is heading for a weekly decline. Prices are down 14% this year. Brent for October settlement is 1.7% lower this week.

Crude Oil in New York has fallen more than 25% from its June closing high on signs the surplus will persist.

Leading members of the OPEC (Organization of Petroleum Exporting Countries) are sustaining output, while Iran seeks to boost supply once international sanctions are lifted. US stockpiles remain about 100-M bbls above the 5-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,” Goldman said. “The uncertainty on how and where that adjustment will take place has increased.”

The US pumped 9.14-M BPD of Crude Oil last week, almost 3-M bbls above the 5-year seasonal average, according to data from the Energy Information Administration (EIA). While the EIA this week cut its Y 2015 output forecast for the nation by 1.5% to 9.22-M BPD, production this year is still projected to be the highest since Y 1972.

OPEC, the supplier of 40% of the world’s Crude Oil, has produced above its 30-M BPD quota for the past 15 months. Iranian Oil Minister Bijan Namdar Zanganeh has vowed to increase output by 1-M BPD once sanctions are removed as the nation seeks to regain market share.

Stay tuned…

HeffX–LTN

Paul Ebeling

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