Oil falls as banks cut price forecasts

Oil prices fell on Tuesday, as global oversupply encouraged several banks to cut their forecasts for crude for this year and 2018.

Benchmark Brent crude was down 15 cents at $46.73 a barrel by 1310 GMT. U.S. light, sweet crude was 15 cents lower at $44.25.

The fundamental mood has taken a turn for the worse,” Harry Tchilinguirian, head of oil strategy at French bank, BNP Paribas, told Reuters Global Oil Forum.
BNP Paribas slashed its forecasts for Brent by $9 to $51 a barrel for 2017 and by $15 to $48 for 2018. Barclays also cut its 2017 and 2018 Brent forecasts to $52 a barrel for both years from $55 and $57 respectively.

Crude prices are about 18 per cent below their 2017 opening levels, despite a deal led by the Organization of the Petroleum Exporting Countries, OPEC, to cut production from January.
OPEC, along with Russia and some other major exporters, has agreed to hold production at about 1.8 million barrels per day (bpd) below levels pumped at the end of last year.
The limits will be maintained until March 2018, in an attempt to drain a global glut, but production elsewhere has risen as OPEC has held back.

U.S. oil production has jumped more than 10 per cent over the last year to 9.34 million bpd. Nigeria and Libya, OPEC members exempted from production limits, have also increased output.

Without a significant fall in oil inventories or a decline in U.S. drilling and production, Goldman Sachs said U.S. crude could drop below $40 per barrel.
OPEC members are also under pressure to increase supply to customers, particularly in Asia.

Saudi Aramco will meet customers’ full crude oil requirements in India and many other Asian countries in August, several sources with knowledge of the matter said on Tuesday.
“There is no (supply) cut” even for heavier grades, such as, Arab Medium and Heavy crude in August, one of the sources said.

Meanwhile, Saudi Arabia has told OPEC it raised crude product Goldman says oil prices could fall below $40 if OPEC doesn’t act. Global stockpiles are declining, but rising production in Libya and Nigeria is a concern, according to Goldman.

The report said that, oil prices could soon fall below $40 a barrel, if investors don’t get a clear catalyst that prompts them to start buying the commodity, Goldman Sachs said on Tuesday.

The investment bank believes oil prices will not rally until traders see at least one of two things: further intervention from OPEC or a consistent drop in both U.S. crude oil stockpiles and the number of rigs operating in American fields.

A failure for these shifts to materialize soon could push prices below $40/bbl, as the market tests OPEC’s and shale’s reaction functions,” Goldman analysts wrote in a research note. Importantly, we wouldn’t expect such a move to be volatile, as it is not driven by storage concerns like last year … but the ongoing search for a new equilibrium.”

The bank, last week, revised its three-month price target on U.S. crude to $47.50 a barrel, down from an earlier forecast of $55 a barrel. On Tuesday, U.S. West Texas Intermediate crude was trading at about $44, up from a recent low near $42.

Goldman notes that the 6.3 million barrel drop in U.S. crude stockpiles last week was historically high. Further, June saw declines in U.S., Japanese, Singaporean and certain European inventories that were above normal seasonal levels.

However, caution is warranted in light of growing production from Libya and Nigeria, the two OPEC members exempt from the cartel’s output cut agreement. Exporters have agreed to remove 1.8 million barrels a day from the market through March, in a bid to shrink global stockpiles and boost oil prices.

OPEC has invited Libya and Nigeria to attend a technical meeting this month. Producers have reportedly begun to consider asking the two nations to limit their output.
“We continue to believe that there is another opportunity for OPEC to increase the cuts, but that this should be done in a ‘shock and awe’ manner, with little public announcement,” Goldman said.

Goldman further cautioned that this week’s drop in U.S. inventories will likely be relatively small, due to seasonal trends and an anticipated jump in the amount of oil flowing from the U.S. government’s strategic petroleum reserve into commercial stockpiles.

The U.S. rig count also rose last week after logging only its second decline in the previous week, frustrating market watchers hoping for a drop in drilling activity among U.S. shale oil producers.

Given that the market is now out of patience for large stock draws and increasingly concerned about next year’s balances, we believe that price upside will need to be front-end driven, coming from observable near-term physical tightness and signs of a U.S. shale activity slowdown on a sustained basis in coming weeks,” Goldman said.

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