Goldman Sees Oil Hurt by Dollar Gain, Not Gasoline Glut

Morse: Oil Prices Will Rise, Question Is Timing
  • Prices to trade between $45-$50/bbl through mid-2017: Goldman
  • Global crude market to have ‘modest’ deficit in 2H this year

Ignore the gasoline glut, a stronger U.S. dollar presents the most risk to oil prices in the near term, according to Goldman Sachs Group Inc.

Further dollar strength on economic uncertainty outside the U.S., along with a potential interest-rate increase by the Federal Reserve could push oil prices lower, Goldman analysts including Damien Courvalin said in an e-mailed report. The gain in gasoline stockpiles is not a catalyst for further price declines because it is supply and not demand driven.

Brent, the global benchmark, has slipped more than 15 percent since early June amid speculation that high inventories of both crude and gasoline will stifle a price recovery. The global oil market will have a “modest” deficit during the second half of this year and futures will trade between $45 and $50 a barrel through to mid-2017, Goldman said.

“We are currently going through the typical later stages of an oil bear market, when strengthening crude fundamentals run into weakening product fundamentals,” Goldman said in the report dated July 27. “Uncertainties on the near-term path of the oil market re-balancing have left the U.S. dollar as the primary driver to lower crude oil prices recently.”

Brent for September settlement fell 54 cents to $42.93 a barrel on the London-based ICE Futures Europe exchange at 4:20 p.m. London time. Prices dropped 3.1 percent to $43.47 a barrel on Wednesday, closing at the lowest since April 18. West Texas Intermediate was 52 cents lower at $41.40.

Global gasoline demand continues to grow robustly, Goldman said. A worldwide slowdown in demand, a sharp halt in China’s crude inventory build, or an increase in Libyan, or Nigerian production, is needed to drag prices back below $35 a barrel, Goldman said.

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