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Oil dips after Goldman pours cold water on output freeze prospects

by April 11, 2016 General

By Henning Gloystein

SINGAPORE (Reuters) – Crude prices dipped on Monday as analysts, including Goldman Sachs, poured cold water on the prospects of a planned oil producer meeting successfully reining in global oversupply, although a firm demand outlook checked losses.

U.S. crude eased to $39.50 by 0600 GMT, off the day’s high of $40.47 and down 22 cents from the prior session. Prices had rallied more than 6 percent on Friday after data showed U.S. energy firms had cut oil rigs for a third straight week to the lowest since November 2009.

Brent was down 26 cents at $41.68 a barrel, also after sharp gains late last week that were fuelled by production outages in the North Sea and West Africa and hopes a planned meeting in Doha on April 17 of producers will lead to an output freeze. Global overproduction is currently estimated at about 1 million barrels per day (bpd) in excess of demand.

But Goldman Sachs cautioned that the results of the April 17 meeting may end up being bearish for the market.

“A production freeze at recent production levels would not accelerate the rebalancing of the oil market as OPEC (ex. Iran) and Russia production levels have this year remained close to our 2016 average annual forecast of 40.5 million bpd,” it said.

“We see greater odds that the Doha meeting delivers a bearish catalyst for oil prices… (and) we continue to believe that the balancing of the oil market requires sustained low prices with our 2Q16 forecast of $35 per barrel,” it added.

Barclays also said that the “current expectation is for their actions to have limited impact.”

Additionally, Morgan Stanley warned that current oil prices reflected temporary outages and that this “does not necessarily imply upside for flat price or evidence of a faster recovery in the global imbalance”.

However, the longer-term outlook for oil seemed less bearish, with analysts forecasting a pick up in demand.

Researchers at Bernstein expect global oil demand to grow at a mean annual rate of 1.4 percent between 2016 and 2020, versus an annual growth of 1.1 percent over the past decade.

“We expect oil markets to rebalance by the end of 2016. This will allow oil prices to recover towards the marginal cost of $60 per barrel,” Bernstein said, adding that global demand would reach 101.1 million bpd by 2020 from 94.6 million bpd now.

Bernstein’s strong demand outlook was underpinned by Chinese data, where vehicle sales in March rose 7.8 percent from a year earlier, with car sales totalling 1.92 million.

(Editing by Himani Sarkar and Christian Schmollinger)