OPEC Outcome Unlikely To Sway Weak Q4 Oil Outlook: Goldman

At last check, the WTI grade of crude oil was trading down $1.27 at $44.66.

Surplus Woes

Analyst Damien Courvalin estimates a global surplus of 400 kilo barrels per day in the fourth quarter compared to the 300 kb/day draw estimated earlier. The surplus assumption is conservative, as it assumes only a limited additional increase in Libya/Nigeria production, the analyst said.

Related Link: Goldman: Q4 Oil Supply Demand Balance Is "Weaker Than Previously Expected"

Goldman noted that oil prices remained range bound ahead of the OPEC consultation in Algiers this week and the failure of production disruptions to meaningfully increase. While noting that OPEC members are more unanimous than before, the firm said it expects production by Saudi to decline into the year end, while the rest of the cartel is expected to show no change. The firm expects OPEC, excluding Libya/Nigeria to see growth resuming only in the first quarter of 2017.

Trivial Production Declines: Bearish

The base case forecast of Goldman sees the decline in combined OPEC production, excluding Nigeria and Libya, to be only be 340 kb/day in the fourth quarter. In the first quarter of 2017, growth of 140 kb/day is estimated.

Q4 Price Forecast Slashed

As such, Goldman lowered its crude oil price forecast for the fourth quarter to $43 per barrel from $50 barrel. Although a deal could be bullish for prices, the firm sees offsetting impact from the potential for less disruptions and still relatively high net long speculative positioning, which leaves the risks skewed to the downside going into the year-end.

Balance Seen In 2017

However, Goldman's 2017 outlook for a more balanced demand and supply scenario is unchanged. The firm expects resilient demand growth, with bigger than previously expected production declines in the U.S., Mexico, Venezuela, Brazil and China being offset by greater visibility in the large 2017 project ramp up in Canada/Russia/Kazakhstan/North Sea.

Goldman pitched its 2017 oil price estimate at $52 per barrel, with prices expected to range between $45 and $50 in the first half. According to the firm, low cost and disrupted supply will determine an eventual price recovery.

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