A self-fulfilling prophecy? Not really. Goldman Sachs slashes oil price forecast, brings prices further down

Published October 28th, 2014 - 05:56 GMT
Brent is set to average $85 a barrel in the first quarter, down from a previous forecast of $100.
Brent is set to average $85 a barrel in the first quarter, down from a previous forecast of $100.

US oil prices tumbled to a 28-month low below $80 per barrel on Monday after Goldman Sachs slashed its price forecasts amid further signs of lackluster demand and booming supply, but crude later pared some losses as the US dollar slipped.

Weaker-than-expected US pending home sales data at mid-morning sent the dollar index lower, pepping up dollar-denominated commodity markets across the board.

But the bounce failed to completely erase losses that came after Goldman Sachs cut its forecast for Brent to $85 a barrel from $100 for the first quarter of 2015 and reduced its projection for US crude to $75 from $90, making it the most bearish bank on Wall Street.

US crude for December fell to $79.44 per barrel, its lowest level since June 2012, before paring losses to trade down 88 cents at $80.30 by 1507 GMT. Brent for December fell to a low of $84.55 but also partially recovered to last trade down 75 cents on the day at $85.48.

 “Goldman Sachs’ downgrade reinforces the dismal outlook,” said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. “Bearishness prevails and the market is still in the process of trying to find a new floor.”

Deutsche Bank also cut its oil-price forecasts sharply on Monday, reducing its projection for Brent in 2015 to $88.75 a barrel from $103.25 and cutting its US crude oil forecast for 2015 to $80.50 from $96.25.

“The market is worried about further weakness. Doubts beget doubts as there are no indications of a clear sign of recovery in demand, while supplies are no doubt in excess,” said Ken Hasegawa, commodity sales manager at Newedge.

“It’s not at the stage where participants could buy oil wholeheartedly believing it’s a bargain now.” Oversupply has helped build up oil inventories worldwide.

“As we sold off (in early trade), pending home sales came out which misses expectations so the US dollar came off and some buyers stepped in,” said Bill Baruch, senior market strategist at futures for iitrader.com LLC in Chicago.

The Ifo, a key index of German business sentiment fell to its lowest level in two years on Monday, adding to concerns about weak demand and the risk Europe could slip into recession.

Meanwhile a senior Iranian oil official said the OPEC was unlikely to reduce its production ceiling when it meets in November, according to Shana, Iran’s oil ministry news agency.

Goldman Sachs Group Inc cut its forecasts for Brent and West Texas Intermediate (WTI) crude prices next year on rising global supplies, predicting OPEC is set to lose influence over the oil market amid the US shale boom.

The bank is becoming more confident in the scale and sustainability of US shale oil production and said US benchmark prices need to decline to $75 a barrel for a slowdown in output growth.

Brent is set to average $85 a barrel in the first quarter, down from a previous forecast of $100, and WTI is scheduled to sell for $75 a barrel in the period, from an earlier estimate of $90, analysts including Jeffrey Currie wrote in a report.

The biggest members of OPEC are discounting supplies to defend market share rather than cutting production to boost prices that have collapsed into a bear market.

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