Goldman Sees No Crude Glut as Price Slump Deemed Excessive
By Ben Sharples
Oct. 17 (Bloomberg) — Oil’s collapse into a bear market is
excessive because there’s no oversupply to justify the selloff,
according to Goldman Sachs Group Inc.
The bank is “near-term constructive about prices” after
they fell too much, too soon, analysts including Jeffrey Currie,
the head of commodities research in New York, wrote in a report
e-mailed today. While expectations of a glut have driven down
crude, the risk of a near-term shortage may increase as forward
prices of benchmarks including West Texas Intermediate and Dubai
crude discourage stockpiling, it said.
Oil futures slumped to the lowest in four years in London
amid the highest U.S. output in almost 30 years and weakening
global demand growth. Members of the Organization of Petroleum
Exporting Countries are responding by cutting prices, prompting
speculation that they will compete for market share rather than
“The ‘supply glut’ is not yet here today, it exists in
expectations,” the Goldman analysts wrote. “Prices have likely
overshot to the downside.”
The lower prices go, the tighter the balance between supply
and demand will become, Goldman said. With every 10 percent drop
in oil prices, consumption grows by 0.15 percent, the bank
estimated. Brent crude’s slump of almost 30 percent from its
June peak may mean additional demand of almost 500,000 barrels a
day, according to the bank.
This demand response means “pricing in the future can be
self-negating,” the analysts wrote. Dubai crude gained this
week as more Asian buyers entered the market, the bank said.
“In the current environment we believe the risks are skewed to
the upside” for prices.
Futures are paring losses as other banks including BNP
Paribas SA and Bank of America Corp. predict the rout may be
over. West Texas Intermediate, the U.S. benchmark crude, rose as
much as 1 percent to $83.52 a barrel in New York today,
extending yesterday’s rebound from the lowest price since June
2012. Brent for December settlement was little changed after
advancing 2 percent yesterday in London.
Goldman said its long-term outlook for oil remains bearish
because of a combination of cost deflation and technological
improvement, and the sharp rise in U.S. shale output combined
with improving supplies from countries outside OPEC such as
Saudi Arabia, OPEC’s biggest producer, should no longer be
seen as the first producer to act to balance the market, the
bank said. U.S. shale oil production can easily be increased or
decreased, making it the most probable “first swing barrel” to
respond to price changes, according the bank.
If a glut materializes, WTI would need to drop below $80 a
barrel “for an extended period of time” to prompt a slowdown
in U.S. exploration and production, Goldman said.
“Given the high level of volatility and uncertainty, we
believe commodity markets will calm at least temporarily until
evidence of oversupply is seen in rising inventories,” the