Oil slides as Goldman says Opec cuts not enough

Higher output from Libya and Nigeria boosted Opec output by 400,000 bpd in June. Ramzi Boudina / Reuters

Oil erased earlier gains to trade near US$44 a barrel in New York as Goldman Sachs warned Opec that it is not doing enough to clear a surplus.

Futures slid 0.5 per cent after advancing 1.2 per cent earlier. Oil may slip below $40 unless there are sustained inventory declines and a drop in the rig count, according to Goldman Sachs. US crude stockpiles probably fell by 2.85 million barrels last week, a Bloomberg survey showed before an Energy Information Administration report Wednesday.

Oil is in a bear market amid concern that rising global supply will offset curbs by Opec and its partners including Russia. US crude inventories remain more than 100 million barrels above the five-year average. The nation’s shale output can expand further with prices in the mid-$40s, according to JPMorgan Chase.

“The market is still searching for a new equilibrium, and in particular for a lower band for the oil-price range,” said Jan Edelmann, an analyst at HSH Nordbank in Hamburg. Investor sentiment is “close to its lows”, which may cause a “renewed downswing in prices to sub-$40”.

West Texas Intermediate for August delivery was at $44.18 a barrel on the New York Mercantile Exchange, down 22 cents, at 12:37am UAE time. Total volume traded was about 31 per cent above the 100-day average. The contract climbed 17 cents to $44.40 on Monday, advancing after a weekly loss.

Brent for September settlement was down 26 cents at $46.62 a barrel on the London-based ICE Futures Europe exchange, after rising 17 cents to $46.88 on Monday. The global benchmark crude traded at a premium of $2.24 to September WTI.

Evidence of further Opec actions could also help prices rally, Damien Courvalin, an analyst at Goldman, said in a note dated July 10. There is another opportunity for the group to increase output cuts, but this should be done in a “shock and awe” manner, with little public announcement, he said.