Oil Guru Who Called 2014 Rout Sees $ 70 Oil in 2016

  • PIRA sees demand growth at 1.7 million barrels a day in 2016
  • Production from non-OPEC nations including U.S. seen declining

OPEC will probably hold production steady at its meeting next month as the gap between supply and demand for oil closes, according to the analyst who correctly predicted last year’s rout in prices.

“I don’t think they have to do anything,” Gary Ross, founder and chairman of PIRA Energy Group, said in an interview in Singapore on Monday, referring to the Organization of Petroleum Exporting Countries. Global consumption of crude will continue to grow while output from non-OPEC countries will decline next year, helping to bring the market toward equilibrium, he said.

Oil tumbled more than 48 percent last year as U.S. stockpiles and production expanded, creating a global oversupply that the International Energy Agency estimates will persist until at least the middle of 2016. OPEC’s strategy to defend market share has exacerbated the glut as the group, which kept its production target unchanged at 30 million barrels a day at the last meeting in June, exceeded the quota for the past 17 months.

“There has to be a tightening of balances,” said Ross, who last year turned bearish on oil before prices shrank by almost half. While OPEC volumes have increased, both demand and production from outside the group have responded to low prices, he said.

Brent crude for December delivery was unchanged at $49.56 a barrel on the London-based ICE Futures Europe exchange at 12:50 p.m. Singapore time. Prices have decreased 14 percent this year.

$70 Brent

PIRA forecasts demand for crude to grow 1.7 million barrels a day in 2016, compared with 1.9 million a day this year. Output outside OPEC is expected to decline next year by “several hundred thousands of barrels a day,” Ross said. Among the 12 members of OPEC, production is predicted to increase only in Iran and Iraq.

“Total non-OPEC crude and condensate production is forecast to fall below last
year’s levels,” said Ross, predicting that Brent may rise to $70 by the end of 2016. “Supply growth is limited to OPEC, which grows just 500,000 to 600,000 barrels a day.” On average, Iran’s output will rise 300,000 barrels a day and Iraq’s will increase 240,000 barrels a day, compared with a year earlier, he estimated.

OPEC, which supplies about 40 percent of the world’s oil, is scheduled to gather in Vienna on Dec. 4, when Iran will officially notify the group of its plans to boost production by 500,000 barrels a day as soon as international sanctions against the Persian Gulf state are lifted, Oil Minister Bijan Namdar Zanganeh said in an interview with Mehr news agency.


Russian Crude Output Hits Post-Soviet Record

Russian oil production broke a post-Soviet record in October for the fourth time this year as earlier investments boosted output and producers prove resilient to lower crude prices.

Production of crude and gas condensate, which is similar to a light oil, averaged 10.776 million barrels a day during the month, according to data from the Energy Ministry’s CDU-TEK unit. That is an increase of 1.3 percent from a year earlier and up 0.3 percent from the previous month.

“Russian oil production is still reflecting oil prices above $100 a barrel due to long lead times in the investment cycle,” Alexander Nazarov, an oil and gas analyst at Gazprombank JSC, said by e-mail from Moscow. “The reason behind growth this year dates back to 2010-2014, when a number of projects were financed.”

Output has kept growing even as the Organization of Petroleum Exporting Countries chose to defend market share rather than cut output amid a supply glut last year, a decision that sent prices tumbling. Gazprom Neft PJSC and Novatek OJSC are ramping up output at one of the country’s biggest new projects. Russia’s tax policies insulate the industry from swings in oil prices, with the state bearing most of the risk and reward.

The ruble’s slump over the past year, which has tracked weaker crude prices, has made oilfield services, including drilling, cheaper and supported operating margins, Nazarov said.

Russian crude exports rose to 5.42 million barrels a day in October, a 10 percent gain from the previous year and up 1.7 percent from the previous month.

Iran – Oil sanctions to be lifted in late 2015 or early 2016 – Adding 2 Million Barrels A Day

Iran has said it will offer about 50 energy projects to investors and plans to boost output by about 2 million barrels a day once the deal is in place.

Sanctions against Iran probably will be lifted within the first three months of 2016, after the International Atomic Energy Agency has confirmed the nation has curtailed its nuclear work, diplomats said last month. Once the restrictions are removed, relief is expected to fuel economic growth by lowering barriers to Iran’s oil exports and ending the isolation of its banks.

Iranian Oil

Iran has said it will offer about 50 energy projects to investors and plans to boost output by about 2 million barrels a day once the deal is in place. The Persian Gulf nation, with the world’s fourth-largest oil reserves, pumped 2.8 million barrels a day last month, according to data compiled by Bloomberg.

One nation, Japan, plans to triple its imports of Iranian crude once sanctions are lifted, the Iranian Oil Ministry’s Shana news agency said on Saturday, citing Seyed Mohsen Ghamsari, director of international affairs at National Iranian Oil Co. Japan will increase purchases to 350,000 barrels a day from 110,000 barrels, the agency said.

The U.S. waivers will result in the lifting of sanctions that now restrict or penalize non-U.S. companies for engaging in various economic activities, including buying Iranian oil and dealing with many Iranian banks, the U.S. officials said.

Narrow Categories

But for U.S. companies, sanctions will be eased only for certain narrow categories, the officials said. They said these include the export of civilian passenger aircraft, the import of spare aircraft parts and handicrafts from Iran, and some activities that subsidiaries of U.S. companies can conduct overseas.

In addition, Obama told reporters on Friday that sanctions “related to ballistic missiles, human-rights violations, terrorism — those, we will continue to enforce.”

In another sign of progress, IAEA monitors last week ended their 12-year investigation into the possible military dimensions of Iran’s nuclear past. Inspectors now have until Dec. 15 to draft and present a final assessment of their inquiry.

Iran’s nuclear work has been the focus of international scrutiny since February 2003, when Iranian officials told inspectors visiting Tehran of their plans to begin enriching uranium on an industrial scale. Subsequent discoveries that Iran had secretly procured nuclear materials and technologies led to years of mistrust. In May 2008 and again inNovember 2011, the IAEA publicly disclosed its suspicions about Iran’s activities.

Iran has consistently denied ever seeking a nuclear weapon.

Timeline to lifting sanctions:

  • Sunday — “Adoption Day” for July accord signed with world powers. Parties to the agreement begin meeting their commitments.
  • Nov. 30 — Iran prepares to end testing of advanced centrifuge cascades and store machines under IAEA seal.
  • Dec. 15 — IAEA to present its assessment of Iran’s past nuclear activities, which board will use “with a view to closing the issue.”
  • Late 2015-early 2016 — Oil sanctions to be lifted on “Implementation Day.” U.S. officials have suggested it will take at least two months from “Adoption Day” to reach this point.

    Saudi Arabia, the world’s largest oil exporter, is storing record amounts of crude in its quest to maintain market share as it cut shipments.

    Commercial crude stockpiles in August rose to 326.6 million barrels, the highest since at least 2002, from 320.2 million barrels in July, according to data posted on the website of the Riyadh-based Joint Organisations Data Initiative. Exports dropped to 7 million barrels a day from 7.28 million.

    “The fall in Saudi crude exports reflects the market reality,” Mohammed Ramady, an independent London-based analyst, said Sunday by phone. “It’s normal to see this fall knowing that the market is becoming highly competitive, with many countries in OPEC selling at discounts and under-pricing the Saudi crude.”

    Crude inventories have been at record highs since May, a month before Saudi Arabia’s production hit an all-time high of 10.56 million barrels a day. The nation has led the Organization of Petroleum Exporting Countries in boosting production to defend market share, abandoning its previous role of cutting output to boost prices.

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Credit Suisse: Oil Has Stabilized Because Saudis Got What They Wanted


Forget wealth effect. The global equity market can’t have a smooth bull run if oil prices are tanking.

This is because commodity-related capital expenditure accounts for around 30% of total capex globally, so even though consumers may benefit from cheaper oil, companies are hit first.Credit Suisse estimates that the fall in commodities capex has taken at least 0.8% off the U.S. economic growth in the first half this year and 1% off global growth over the last year.

But the worst is over, according to analyst Andrew Garthwaite and team. They listed three reasons: 1. demand for oil has stabilized; 2. non-OPEC production has peaked; 3. Saudi Arabia has achieved its goal of deterring new entrants.

Since Saudi Arabia is the wild card, Credit Suisse analysts took pains to explain their position:

We believe that the key variable is Saudi Arabia. If it were not for Saudi Arabia, then we fear that oil would have to behave like other commodities and if there is excess supply fall to levels where a third of production is below the cash cost and, given the likely fall in commodity currencies, this in turn would lead to a much lower oil price (maybe down to $30/barrel).

This leads to the question ‘Can Saudi Arabia support the oil market?’. We think the answer is yes. They control the vast majority of spare capacityaccording to our oil team and 13% of output.

Their clear aim was to restore market share against non-OPEC and avoid being a swing producer (and thus not repeat the 1980 to 1985 experience, when their oil production fell by 70% as they sought to defend the oil price) and also limit the growth in alternative energies. The key is clearly at what point they have achieved their objective. The issue is nearly always the same – costs fall much more quickly than expected, partly because commodity currencies fall and partly because of cost deflation.

Moody’s highlight that the breakeven for median shale is around $51pb. Thus it may be the case that around the current oil price, Saudi Arabia believe they have achieved their objective of pricing out new shale projects.

Additionally the reduction in the oil price has come at a cost, with the budget deficit estimated to be 20% of GDP in 2015 (IMF Article IV – Saudi Arabia). While government debt to GDP is very low at c1%, we view the recent selling of Sama reserves and the first sovereign bond issue since 2007 as signs that there is some degree of stress.

Brent crude jumped another 2.2% to trade at $49.58 recently after a 5% rally overnight.

Oil stocks rallied. CNOOC (883.Hong Kong/CEO) advanced 12.1%, China Oilfield Services(2883.Hong Kong) gained 9.5%, PetroChina (857.Hong Kong/PTR) was up 7.8%. Sinopec(386.Hong Kong/SHI) jumped 6.8%. The Hang Seng China Enterprises Index advanced 4%. Overnight, the United States Oil Fund (USO) rose 4.9%.

Oil jumps $2, breaking range as supply seen ebbing


NEW YORK (Reuters) – Oil prices jumped more than $2 a barrel on Tuesday, breaking out of a month-long trading range on a mix of technical buying and industry talk as well as U.S. government data suggesting the global supply glut could be ebbing.

Global benchmark Brent crude (LCOc1) rallied for a third straight day and settled above $50 a barrel for the first time in a month. This convinced some dealers that there was little chance prices would slide back to the 6-1/2-year lows touched in August.

Early gains were fueled by a U.S. government forecast for tighter oil supplies next year, and indications that Russia, Saudi Arabia and other big producers might pursue further talks to support the market. The rally accelerated above $50 on chart-based buying and a weakening dollar.

Brent settled up $2.67, or 5.4 percent, at $51.92 a barrel, breaking out of the $47 to $50 band it had traded since early September. Its session peak, a penny shy of $52, was the highest since Sept. 3, and took three-day gains to more than 7 percent.

West Texas Intermediate (WTI), the U.S. crude benchmark (CLc1), settled up $2.27, or 4.9 percent, at $48.53.

“We have reduced the probability of a return to the $37 to $38 area per nearby WTI,” said Jim Ritterbusch of oil consultancy Ritterbusch & Associates in Chicago. “We will maintain a longstanding view that price declines below this support level are virtually off of the table.”

Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland, concurred, saying: “Steeper U.S. production declines over the near term have created a bid for oil prices.”

Even so, analysts told a Reuters survey that U.S. crude stockpiles likely rose last week for a second straight week as more refineries went into maintenance works. [EIA/S]

The American Petroleum Institute industry group will issue at 4:30 p.m. (2030 GMT) preliminary data on U.S. crude inventories for last week, before official numbers on Wednesday from the Energy Information Administration (EIA).

Global oil demand will grow by the most in six years in 2016 while non-OPEC supply stalls, the EIA said in its monthly report on Tuesday that suggested a surplus of crude is easing more quickly than expected.

Total world supply is expected to rise to 95.98 million barrels a day in 2016, 0.1 percent less than forecast last month, the EIA said in its Short-Term Energy Outlook. Demand is expected to rise 270,000 bpd to 95.2 million barrels, up 0.3 percent from September’s forecast.

Oil executives at an industry conference in London, meanwhile, warned of a “dramatic” decline in U.S. output that could lead to a price spike if fuel demand escalates. Mark Papa, former head of U.S. shale producer EOG Resources, told the “Oil and Money” conference that U.S. production growth would tail off this month and start to decline early next year.

Russia’s energy minister said Russia and Saudi Arabia discussed the oil market in a meeting last week and would continue to consult each other.

OPEC Secretary-General Abdullah al-Badri said at a conference in London that OPEC and non-OPEC members should work together to reduce the global supply glut.

Iran’s crude sales were on track to hit seven-month lows as its main Asian customers bought less.

Suncor Boosts Stake in Fort Hills Oil Sands Project

Suncor Energy Inc. is deepening its exposure to its Fort Hills oil sands mine, buying an additional 10-per-cent stake even as oil prices languish under $50 (U.S.) a barrel.

Calgary-based Suncor said on Monday it would pay $310-million to France’s Total SA, boosting its ownership stake to 50.8 per cent. The $13.5-billion mine in Northern Alberta is expected to begin pumping crude in late 2017, adding 180,000 barrels per day of new capacity over time.

The deal comes with U.S. and world oil prices trading at less than half the levels of a year ago, fuelling expectations of increased deal-making as companies seek to offload assets to patch up balance sheets.

Suncor said the added spending associated with the transaction would be covered within its current budget of $5.8-billion to $6.4-billion.

Total said the sale further reduces its exposure to Canada’s high-cost oil sands. The company last year scrapped a separate mining venture called Joslyn. It expects to save about $700-million by shrinking its ownership share in Fort Hills to 29.2 per cent.

The deal is expected to close by the end of the year. Teck Resources Ltd. owns 20 per cent of the joint venture.

Alberta Election Result Latest Blow to Oil Industry

(Bloomberg) — Canada’s energy industry, already buffeted by low oil prices and stalled pipeline projects, is bracing for more setbacks after a New Democratic Party that pledges to raise corporate taxes was swept to power in Alberta.

The NDP, led by Rachel Notley, ended a 44-year Progressive Conservative dynasty by winning a majority of districts in elections Tuesday, according to preliminary results. The NDP promises to boost corporate taxes, review the government’s take on energy revenue, scale back advocacy for pipelines and phase out coal power more quickly.

“It’s completely devastating,” for energy companies and investors, Rafi Tahmazian, who helps manage C$1 billion ($831 million) in energy funds at Canoe Financial LP in Calgary, said on Tuesday. “The perception from the market based on their comments is they’re extremely dangerous.”

The NDP victory may spark a sell off in Canadian energy stocks and stall investment in the oil patch, which is counting on more than C$500 billion in spending over the next three decades in the oil sands alone. The Standard & Poor’s/TSX Energy Index of 64 Canadian oil and gas stocks fell 1.4 percent Tuesday before results came out, the biggest drop in a month.

Energy producers in Alberta, the heart of the Canadian industry, are cutting jobs, reducing drilling and shelving billions of dollars of new investment because of the oil price collapse. While U.S. crude’s rise to around $60 a barrel from a six-year low in March has injected fresh optimism into the industry, executives are preparing for a slow recovery to levels that would make new projects profitable in the oil sands, the world’s third-largest reserves.

Clear Negative

“Just when we’re starting to look like we’re recovering here, we get another layer of uncertainty,” said Martin Pelletier, managing director and portfolio manager at TriVest Wealth Counsel Ltd. in Calgary. Pelletier sold some oil and gas shares as polls ahead of Tuesday’s vote forecast an NDP win, he said. “It’s a clear and material negative.”

U.S. investor clients of Calgary-based investment bank AltaCorp Capital Inc. were also pulling positions in Canadian stocks in the run up to the election, anticipating an NDP victory, said analyst Jeremy McCrea. Energy shares, particularly oil-sands operators, are poised to fall over the threat of higher royalty rates, he said.

Suncor Energy Inc., Imperial Oil Ltd., Canadian Natural Resources Ltd. and Cenovus Energy Inc. are among Canada’s largest oil-sands operators.

“Now is not the time for a royalty review,” said Jeff Gaulin, vice president of communications at the Canadian Association of Petroleum Producers. “The uncertainty that that would create for investment would jeopardize jobs in Alberta.”

Good Partner

The energy lobby group is confident it can nonetheless work with Notley’s NDP, Gaulin said.

“Our government will be a good partner” for the energy industry, Notley, 51, said in her victory speech.

There’s a precedent for a stock sell-off based on Alberta energy policy. Canadian oil and gas stocks lost ground to their U.S. peers around October 2007 when the Progressive Conservative government raised royalty rates. The shares traded about 14 percent lower for more than a year, until early indications the government would consider reversing the hikes, according to an AltaCorp analysis. In 2010, the PCs led by Ed Stelmach retreated from most of the royalty boost.

Investor Concern

“If you are invested in energy stocks, you should be concerned,” McCrea said. Drillers already face higher costs to extract oil and gas in Alberta than in many jurisdictions, so an increase in royalties would make the province even less competitive, he said.

The number of oil rigs deployed in Canada’s biggest energy-producing province is at its lowest since 2009 after oil lost half its value last year, according to Baker Hughes Inc. data. Already, Western Canada’s oil growth is poised to slow by 59 percent next year, according to the Canadian Energy Research Institute.

Oil growth in the region will slow to 17,000 barrels a day by next year from 41,000 barrels a day in 2014 as conventional production from drilling declines and stays below last year’s levels through the rest of the decade, according to CERI.

Keystone XL

While not in the party’s official platform, Notley has said she will not advocate for the Keystone XL and Northern Gateway pipelines, oil export projects that have come under fire from environmental opponents of the oil sands and communities fearful of spills along their paths. She has said that Kinder Morgan Inc.’s Trans Mountain line and TransCanada Corp.’s Energy East project are worth discussion.

The Alberta government has been a champion in Washington of Keystone XL, TransCanada’s $8 billion pipeline awaiting a decision by U.S. President Barack Obama. Previous provincial leaders have joined the Canadian government in raising awareness about oil-sands development and regulation to try to win U.S. support for Keystone, a line proposed in 2008 that would transport Canadian crude to the U.S. Gulf Coast.’’

Under the NDP, the corporate tax rate will increase to 12 percent from 10 percent. Notley will form a committee to review royalties and has said she will support more refining of oil in the province, despite a commonly-held view by investors and companies that it isn’t profitable.

Minimum Wage

The new premier will also increase the minimum wage to C$15 an hour and impose stiffer environmental standards and monitoring, according to the party’s election platform. In addition, the NDP leader will ban gas drilling in urban areas. The NDP would phase out coal-fired power plants more quickly than federal regulations that limit them to a 50-year life.

Coal is the biggest contributor to the electricity supply in Alberta, where Westmoreland Coal Co., TransAlta Corp. and Teck Resources Ltd. are among producers.

Alberta and Saskatchewan lead the country in the use of coal for electricity, and both provinces have the highest per capita carbon emissions in Canada, at more than 60 metric tons, compared with 12.5 tons in Ontario, according to Environment Canada figures.

Still, Notley’s platform is a general guideline and the new premier will probably move carefully on economic policies, said Jim Lightbody, chair of the University of Alberta’s political science department in Edmonton. She wouldn’t be able to govern the province and make moves detrimental to the energy industry, he said.

“I would project that she moves carefully, cautiously, sensibly,” Lightbody said.

Oil Producers Betting on Price Drop : Goldman Calls $ 40

Photographer: Gabriela Maj/Bloomberg

The oil industry was listening as OPEC talked down crude prices to a more than five-year low.

Drillers, refiners and other merchantsincreased bets on lower prices to the most in three years in the week ended Jan. 6, government data show. Producers idled the most rigs since 1991, with some paying to break leases on drilling equipment.

Companies are hedging more and drilling less amid concern that the biggest slump in prices since 2008 will continue. Oil dropped for a seventh week after officials from Saudi Arabia, the United Arab Emirates andKuwait reiterated they won’t curb output to halt the decline.

Oil Prices

“Producers are desperately hedging their production in a drastically falling market,” Phil Flynn, a senior market analyst at the Price Futures Group in Chicago, said by phone Jan. 9. “They’re trying to lock in prices because they are convinced that the market will stay down for a while.”

WTI slid $6.19, or 11 percent, to $47.93 a barrel on the New York Mercantile Exchange on Jan. 6, settling below $50 for the first time since April 2009. Futures for February delivery declined $1.53 to $46.83 in electronic trading at 8:09 a.m. local time.

OPEC Production

The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world’s oil, has stressed a dozen times in the past six weeks that it won’t curb output to halt the rout. The U.A.E. won’t cut production no matter how low prices fall, Yousef Al Otaiba, its ambassador to the U.S., said at a Bloomberg Government lunch in Washington on Jan. 8.

The group decided to maintain its collective quota at 30 million barrels a day at a Nov. 27 meeting in Vienna. Output averaged 30.24 million barrels a day in December, according to a Bloomberg survey.

U.S. crude production was 9.13 million barrels a day in the seven days ended Jan. 2 after reaching 9.14 million three weeks earlier, the highest in weekly Energy Information Administration data since 1983. Stockpiles were 382.4 million barrels as of Jan. 2, a seasonal high.

The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which have unlocked supplies from shale formations including the Eagle Ford and Permian in Texasand the Bakken in North Dakota. Global oil prices below $40 begin to make wells in such places unprofitable to operate, Wood Mackenzie, an Edinburgh-based consultant, said in a report Jan. 9.

Idling Rigs

Rigs seeking oil decreased by 61 to 1,421, Baker Hughes Inc. said Jan. 9, extending the five-week decline to 154. It was the largest drop since February 1991, which also followed a slide in prices before the start of the Persian Gulf War.

Helmerich & Payne Inc., the biggest rig operator in the U.S., and Pioneer Energy Services Corp. said last week that they had received early termination notices for rig contracts.

Producers and merchants boosted their net short position by 21 percent, or 17,577 futures and options, to 100,997 in the week ended Jan. 6, according to the Commodity Futures Trading Commission, the most since Jan. 10, 2012.

Hedge funds and other large speculators raised bullish bets by 7 to 199,395 contracts.

“You have this tension and lack of consensus among money managers of what to do with a price under $50,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone Jan. 9. “People tend to think of money managers as a black box where they all use same strategy and march in lockstep, but this highlights that it’s not really the case.”

Other Markets

Bullish bets on Brent crude rose to the highest level in more than five months, according to ICE Futures Europe exchange.

Net-long positions gained by 24,598 contracts, or 21 percent, to 140,169 lots in the week to Jan. 6, the data show. That’s the highest since July 15.

In other markets, bearish wagers on U.S. ultra-low sulfur diesel decreased 12 percent to 23,789 contracts as the fuel sank 7.6 percent to $1.7262 a gallon.

Net short wagers on U.S. natural gas fell 15 percent to 10,323 contracts. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Nymex natural gas dropped 5 percent to $2.938 per million British thermal units.

Bullish bets on gasoline declined 0.4 percent to 44,050. Futures slumped 6.8 percent to $1.3543 a gallon on Nymex in the reporting period.

Regular gasoline slid 1.3 cents to an average of $2.139 on Jan. 10, the lowest since May 5, 2009, according to Heathrow, Florida-based AAA, the country’s largest motoring group.

The global crude oversupply is 2 million barrels a day, or 6.7 percent of OPEC output, Qatar estimates. Only 1.6 percent of supply would be unprofitable with prices at $40 a barrel, according to Wood Mackenzie.

“If you’re a producer and your cost is below the price in the market, if you hedge it even at depressed prices you can still make money,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone Jan. 9. “Somebody’s locking in profits even at these low prices.”

Goldman Sees Need for $40 Oil as OPEC Cut Forecast Abandoned

Jan. 12 (Bloomberg) 

Goldman Sachs said U.S. oil prices need to trade near $40 a 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 reduced its forecasts for global benchmark crude prices, predicting inventories will 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, said Goldman analysts including Jeffrey Currie in New York.

The U.S. is pumping oil at the fastest pace in more than three decades, helped by a shale boom that’s unlocked supplies from formations including the Eagle Ford in Texas and the Bakken in North Dakota. Prices slumped almost 50 percent last year as the Organization of Petroleum Exporting Countries resisted output cuts even amid a global surplus that Qatar estimates at 2 million barrels a day.

Oil Prices

“To keep all capital sidelined and curtail investment in shale until the market has re-balanced, 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, the U.S. marker crude, will trade at $41 a barrel and global benchmark Brent at $42 in three months, the bank said. It had previously forecast WTI at $70 and Brent at $80 for the first quarter.

Photographer: Eddie Seal/Bloomberg

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Forecasts Cut

Goldman reduced its six and 12-month WTI predictions to $39 a barrel and $65, from $75 and $80, respectively, while its estimate for Brent for the period were cut to $43 and $70, from $85 and $90, according to the report.

“We forecast that the one-year-ahead WTI swap needs to remain below this $65 a barrel marginal cost, near $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’s sufficient capacity to store a surplus of 1 million barrels a day of crude for almost a year. It expects the spread between WTI and Brent to widen in the next quarter as discounted U.S. crude prices and “strong margins lead U.S. refineries to export the glut to the other side of the Atlantic.”

The Brent-WTI spread will average $5 a barrel in 2016, according to the bank. The gap was at $1.50 today.