Goldman Sachs downgrades oil price forecast: $20 a barrel now real prospect

By Ben Sharples

(Bloomberg) – Goldman Sachs Group Inc. cut its oil price forecasts as it sees a global glut persisting into 2016 on further OPEC production growth that may force prices to drop as low as $20 a barrel.

The bank trimmed its 2016 estimate for West Texas Intermediate to $45 a barrel, from a May projection of $57, according to an e-mailed research note Friday. Goldman also reduced its 2016 Brent crude prediction to $49.50 a barrel, from $62.

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“The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016,” Goldman analysts including Damien Courvalin wrote in the report. “Given our updated forecast for a more oversupplied oil market in 2016, we are lowering our oil price forecast once again.”

If production doesn’t slow, the bank sees the potential for prices to fall to as low as $20 a barrel once the surplus overwhelms logistical and storage capacity.

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“Such a drop would prove transient and help to immediately rebalance the supply and demand for barrels,” the analysts wrote.

Oil in New York has slumped more than 25 percent from its June closing peak amid signs the oversupply will be prolonged. Leading members of the Organization of Petroleum Exporting Countries are sustaining output, while Iran seeks to boost supply once international sanctions are lifted. U.S. stockpiles remain about 100 million barrels above the five-year seasonal average.

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WTI for October delivery fell as much as 45 cents, or 1 percent, to $45.47 a barrel on the New York Mercantile Exchange and is heading for a weekly decline. Brent for October settlement was 6 cents lower at $48.83.

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