Goldman Sachs said U.S. oil prices need to trade near $40 a barrel in
the first half of this year to curb shale investments as it gave up on
OPEC cutting output to balance the market.
The bank reduced its
forecasts for global benchmark crude prices, predicting inventories will
increase over the first half of this year, according to an e-mailed
report. Excess storage and tanker capacity suggests the market can run a
surplus far longer than it has in the past, said Goldman analysts
including Jeffrey Currie in New York.
The
U.S. is pumping oil at the fastest pace in more than three decades,
helped by a shale boom that’s unlocked supplies from formations
including the Eagle Ford in Texas and the Bakken in North Dakota.
Prices slumped almost 50 percent last year as the Organization of
Petroleum Exporting Countries resisted output cuts even amid a global
surplus that Qatar estimates at 2 million barrels a day.
“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,” Goldman said in the report. “The search for a new equilibrium
in oil markets continues.”
West Texas
Intermediate, the U.S. marker crude, will trade at $41 a barrel and
global benchmark Brent at $42 in three months, the bank said. It had
previously forecast WTI at $70 and Brent at $80 for the first quarter.
Forecasts Cut
Goldman
reduced its six and 12-month WTI predictions to $39 a barrel and $65,
from $75 and $80, respectively, while its estimate for Brent for the
period were cut to $43 and $70, from $85 and $90, according to the
report.
“We forecast that the one-year-ahead WTI swap needs to
remain below this $65 a barrel marginal cost, near $55 a barrel for the
next year to sideline capital and keep investment low enough to create a
physical re-balancing of the market,” the bank said.
Goldman
estimates there’s sufficient capacity to store a surplus of 1 million
barrels a day of crude for almost a year. It expects the spread between
WTI and Brent to widen in the next quarter as discounted U.S. crude
prices and “strong margins lead U.S. refineries to export the glut to
the other side of the Atlantic.”
The Brent-WTI spread will average $5 a barrel in 2016, according to the bank. The gap was at $1.50 today.
OPEC Output
Goldman doesn’t expect that Saudi Arabia
or other core members of OPEC will cut production, versus its previous
expectation that the group would help balance the oil market in the
second half of 2015, according to the report.
“This is anchored
on our expectation that the slowdown in U.S. shale oil production in
second-half 2015 will be sufficient to clear the market overhang and the
threat of capital being quickly redeployed to restart U.S. production
growth,” it said.
Thirty-five horizontal rigs, used to reach oil deposits in tight rock formations such as North Dakota’s Bakken shale and Texas’s Permian Basin, were idled last week in the U.S., Baker Hughes Inc. (BHI) said on its website Jan 9. It was the biggest single-week drop since the drilling boom started six years ago.
Oil
at $45 a barrel would curb North Dakota’s output by 100,000 barrels a
day to 1.1 million a day by early July, the state’s Department of
Mineral Resources said in a presentation on its website dated Jan. 8.
Production would continue to slide to 1.05 million barrels a day by the
middle of 2016, it said.
OPEC, which pumps about 40 percent of
the world’s oil, has stressed a dozen times in the past six weeks that
it won’t curb output to halt the slump in prices. The group decided to
maintain its collective quota at 30 million barrels a day at a Nov. 27
meeting in Vienna. Production averaged 30.24 million barrels a day in
December, according to a Bloomberg survey.
Brent for February
settlement dropped as much as $1.56, or 3.1 percent, to $48.55 a barrel
on the London-based ICE Futures Europe exchange at 9:50 a.m. London
time. WTI fell as much as $1.25 to $47.11 in electronic trading on the New York Mercantile Exchange.
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