Goldman Sachs Has A Lot To Say About Oil Prices

Crude oil gained 21 cents Friday morning after reversing gains in early trading on Thursday to end the day in the red. West Texas crude oil is trading at 41.94 well below its trading range and its expected price. Brent oil futures settled steady on Thursday while U.S. crude fell ahead of the expiry of the front-month contract and continued pressure from large inventory builds.

A weaker dollar and stronger refining margins for gasoline, which could prompt refiners to turn more crude into the motor fuel, helped limit the downside in crude.

While a global glut was weighing on crude in general, Brent’s outlook on Thursday was less bearish compared with WTI, after data the previous day showed an eighth straight week of builds in U.S. crude stockpiles. Brent oil added 9 cents to 44.30.

WTI’s weakness has been also demonstrated by the growing discount between the front month to forward contracts as traders stored more crude in the hope of delivering at higher prices later. Goldman Sachs said there remained a downside risk to oil prices “as storage utilization continues to climb”.

Oil traders are preparing for another downward turn in prices by March 2016, market data suggests, as what is expected to be an unusually warm winter dents demand just as Iran’s resurgent crude exports hit global markets after sanctions are ended. what is expected to be an unusually warm winter dents demand just as Iran’s resurgent crude exports hit global markets after sanctions are ended.

Crude futures have already lost around 60% of their value since mid-2014 as supply exceeds demand by roughly 0.7 million to 2.5 million barrels per day to create a glut that analysts say will last well into 2016.

Goldman Sachs said on Thursday that there was a substantial risk of a “sharp leg lower” in oil prices. A recent steep rise in March put option positions tied to a $35-per-barrel strike price in Brent and West Texas Intermediate crude suggests traders agree with the bank and expect the major benchmarks to slump in coming months.

Goldman and other analysts say persistently high US shale oil output that producers aren’t allowed to export could overwhelm the country’s storage tanks, which are already filled with near-record inventories.

Big oil suppliers have started requiring prepayment when selling cargoes of crude and refined products to Venezuela’s PDVSA, in an effort to limit potential risks from the state-run company’s well-known cashflow woes, five sources from firms involved in the deals told Reuters.

Iraq may increase oil output further in 2016, although less dramatically than this year, intensifying a battle for market share between OPEC members and non-OPEC rivals that has forced Baghdad to sell some crude grades for as little as $30 a barrel.