Oil supply seen tumbling due to price drop

Cheap fuel is also hooking consumers, with oil demand growth set to hit a five-year high this year, it added.

Bottom line, the analyst is “increasingly convinced” that the market “needs to see lower oil prices for longer” to achieve any production cut, but the source of any production cut is “growing more uncertain”.

“The oil market is even more oversupplied than we had expected and we forecast this surplus to persist in 2016″, Goldman said in a note titled “Lower for even longer”.

Crude supplies outside Opec will decline next year by the most in more than two decades as the price rout curbs U.S. shale output, according to the worldwide Energy Agency.

“U.S. oil production is likely to bear the brunt of an oil price decline that has already wiped half the value off Brent [crude[“, the influential energy monitor predicted.

OPEC’s squeeze on high-cost producers like U.S. shale drillers, could lead to year to the biggest drop in non-OPEC output in almost a quarter century, the IEA said. West Texas Intermediate for October delivery fell yesterday at one stage by $1.48, or 3.2%, to $44.44 a barrel on the New York Mercantile Exchange, down 3.4% in the past week. Some of the tax charged on petrol and diesel is fixed, so that element of the price is impervious to the fluctuations of the oil market.

Total US imports of crude oil from Saudi Arabia for the week ending September 4 are down roughly 15 percent from a year ago, USA federal data show.

On top of this, Goldman Sachs ( GS ) has now cut its price forecasts, warning that the market’s excess of crude supplies has the potential to force prices to drop as low as $20 a barrel.

Goldman analysts now believe it will take a dramatic drop in production – far greater than the decline forecast by IEA – to get supply back in line with demand and spur higher prices.

The global surplus of oil is even bigger than Goldman Sachs Group thought and that could drive prices as low as $20 a barrel.

While it is not the base-case scenario, a failure to reduce production fast enough might require prices near that level to clear the oversupply, Goldman said in a report yesterday. Iran is gearing up to boost supplies and reclaim its place in the market once trade sanctions are lifted following its nuclear deal with the West.

The number of US oil rigs in operation fell in the latest week by 10 to 652, Baker Hughes (NYSE:BHI) said, marking a second straight drop after a brief rally that tracked a short-lived recovery in oil prices.