Oil prices fell on Monday as weaker than expected Chinese data weighed on markets, adding to concerns that declining global demand would worsen a surplus of crude.
The Paris-based worldwide Energy Agency forecast Friday that production outside the Organization of Petroleum Exporting Countries will fall by 500,000 barrels a day to 57.7 million in 2016.
Thanks to a glut of oil on the market, the price of West Texas Intermediate, trading at $44.68 a barrel on Friday morning, could drop to about $20 a barrel in the near future, according to a report from a Goldman Sachs oil analyst. Iraq, the second-biggest member of the group, produced 3.76 MMbpd in August, compared with 3.7 MMbpd in July, according to an emailed statement from the state oil marketing company known as SOMO.
The forecast is a turnaround for the IEA, which only two months ago predicted U.S. shale oil output would increase by 60,000 barrels per day next year.
“The oil market is even more oversupplied than we had expected and we forecast this surplus to persist in 2016″, Goldman said.
The influx of new oil sources from fracking technology that allows USA producers to tap into shale reserves and a decision from OPEC countries to hold firm on their high production levels despite flagging prices have contributed to the excess. “Outside the USA, oil fundamentals appear to be slipping seasonally”.
Hedge funds added the most bullish oil bets since April in both WTI and Brent in the week to September 8 on optimism that the global oversupply will disappear as producers slow output.
However, the global surplus of oil is even bigger than Goldman Sachs Group Inc thought and that could drive prices as low as US$20 per barrel.
That prompted the Economist Intelligence Unit to predict higher oil prices next year, rather than lower.
The cost of the black gold tumbled last week after Goldman Sachs slashed its price forecasts for next year in the face of a larger-than-expected glut. Gasoline futures on the New York Mercantile Exchange slumped nearly 4 per cent. Traders cited weakness in nearby contracts versus farther-dated ones for RBOB gasoline on NYMEX as the peak USA summer driving season wound to a close. Opec is pretty much saying that they are not going to change their production.
“We continue to see the principal risk to world oil prices being Saudi Arabia’s agenda for greater market share and lower prices to hurt its geopolitical foe, Iran“, Christensen concluded.
“What’s going to happen with Iran is the key factor for the oil market”, Ric Spooner, a chief analyst at CMC Markets in Sydney, said.