Goldman Sachs cuts Q4 2016 oil price forecast, futures drop

Analysts at Goldman Sachs cut their forecast for the price of oil at the tail-end of 2016 following upside surprises on the production side and after greater clarity on the delivery of new projects revealed an unexpected glut was on the cards.

Oil supply would exceed demand by 400,000 barrels a day in the final three months of the year, instead of falling short by 300,000 as Goldman had previously estimated.

Hence, the broker said the price of crude oil in the fourth quarter of 2016 would be at $43 a barrel, versus a prior projection of $50.

"While a potential deal could support prices in the short term, we find that the potential for less disruptions and still relatively high net long speculative positioning leave risks skewed to the downside into year-end," the analysts said.

Nonetheless, Goldman had only penciled in a 90,000 barrel a day increase in supplies from Libya and Nigeria over its forecast horizon.

Looking out to 2017, the broker expected the ramp-up of new projects in Canada, Russia, Kazhakstan and the North Sea to offset greater than previously anticipated production declines in the US, Mexico, Venezuela, Brazil and China.

Due to the above they expected supply and demand to be balanced in 2017, leading them to maintain their forecast for the average price of oil at $52 per barrel.

To take note of, Iran, Iraq and Venezuela had all guided towards output increases next year for each one of them of 250,000 b/d.

Regarding the meeting of OPEC members taking place in Algiers at the start of the week, Goldman said it expected Saudi output to decline into year-end, following the usual seasonal pattern, with no growth from elsewhere, which was "the equivalent of a deal".

"Statements by participants suggest potentially greater collaboration between OPEC members than in previous attempts, although the outcome of this advisory meeting remains uncertain."

As of 1221 BST front moth Brent crude futures were down by 1.719% to $46.55 per barrel in ICE trading.