Goldman Sachs said US oil prices need to trade near US$40 per 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 cut its forecasts for global benchmark crude prices, predicting inventories would 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, Goldman analysts including Jeffrey Currie said in New York.
The US is pumping oil at the fastest pace in more than three decades, helped by a shale boom that has unlocked supplies from formations including the Eagle Ford in Texas and the Bakken in North Dakota. Prices slumped almost 50 percent last year as OPEC resisted output cuts even amid a global surplus that Qatar estimates at 2 million barrels per day.
“To keep all capital sidelined and curtail investment in shale until the market has rebalanced, 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 (WTI), the US marker crude, is set to trade at US$41 per barrel and global benchmark Brent crude at US$42 per barrel in three months, the bank said. It had previously forecast WTI at US$70 and Brent at US$80 for the first quarter.
Goldman reduced its six and 12-month WTI predictions to US$39 a barrel and US$65, from US$75 and US$80 respectively, while its estimate for Brent for the period were cut to US$43 and US$70, from US$85 and US$90, according to the report.
“We forecast that the one-year-ahead WTI swap needs to remain below this US$65 a barrel marginal cost, near US$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 is sufficient capacity to store a surplus of 1 million barrels per day of crude for almost a year. It expects the spread between WTI and Brent to widen in the next quarter as discounted US crude prices and “strong margins lead US refineries to export the glut to the other side of the Atlantic.”
The Brent-WTI spread will average US$5 per barrel next year, according to the bank. The gap was at US$1.50 yesterday.
Goldman Sachs does not expect Saudi Arabia or other core members of OPEC to cut production, versus its previous expectation that the group would help balance the oil market in the second half of this year, according to the report.
“This is anchored on our expectation that the slowdown in US 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 US production growth,” it said.
OPEC, which pumps about 40 percent of the world’s oil, has said a dozen times in the past six weeks that it does not plan to curb output to halt the slump in prices. The group decided to maintain its collective quota at 30 million barrels per day at a Nov. 27 meeting in Vienna last year. Production averaged 30.24 million barrels per day last month, according to a Bloomberg survey.
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