Barclays Cuts Oil-Price Forecasts on World Supply Surplus

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Oil Pipes and Storage Silos in Fujairah
Oil has collapsed into a bear market amid rising global supplies as leading members of the Organization of Petroleum Exporting Countries resisted calls to cut production. Photographer: Duncan Chard/Bloomberg

Barclays Plc cut its oil-price forecasts for the second time this month, citing expectations that OPEC won’t cut supplies sufficiently to remove a global surplus.

The bank reduced its 2015 estimate for the average Brent price to $93 a barrel from $96, and for West Texas Intermediate to $85 from $89. Still, oil has probably reached its lowest point for this year as the oversupply temporarily diminishes and “should recover modestly” during the rest of the quarter, the bank said.

“OPEC supply-side adjustments are expected, but these are unlikely to be sufficient to overcome a lackluster demand picture in the first half of the year,” analysts Miswin Mahesh and Michael Cohen wrote in a report today.

Oil has collapsed into a bear market amid rising global supplies as leading members of the Organization of Petroleum Exporting Countries resisted calls to cut production. The supply glut, which dwindled in the third quarter, will accumulate again next year amid booming U.S. shale output, according to Barclays. Goldman Sachs Group Inc. curbed its 2015 oil forecasts yesterday, saying OPEC is losing its pricing power.

Market Surplus

There will be a surplus of about 900,000 barrels a day in global oil markets during the fourth quarter if OPEC maintains production close to current levels, according to the bank. This “could quickly shrink” if Libyan or Iraqi output falls, Barclays said.

OPEC, responsible for about 40 percent of the world’s oil supply, has resisted calls to cut production to halt the fall in prices. The group produced 30.47 million barrels a day in September, compared with an official target of 30 million, its monthly report on Oct. 10 showed.

Barclays trimmed forecasts for the fourth quarter, reducing its Brent projection to $89 a barrel from $93, and its WTI assessment to $81 from $85.

The bank predicted a “strong recovery” in Brent in the second half of next year, pushing prices back above $100 a barrel, as the slump puts investment in higher-cost projects at risk.

Goldman Sachs said it expects Brent to average $85 a barrel in the first quarter, down from a previous forecast of $100. WTI will sell for $75 a barrel in the period from an earlier estimate of $90, analysts including Jeffrey Currie wrote in a report.

Barclays already trimmed its price estimates this month, reducing its 2015 Brent forecast to $96 a barrel from $107, and its 2015 WTI projection to $89 a barrel from $100 on Oct. 9.

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