SINGAPORE (Oct 3): Goldman Sachs Group says it is losing confidence in its forecast that Brent crude will recover to US$100 a barrel next year.

While the Wall Street bank is maintaining its projection for now, it says a lack of signs of accelerating global economic growth and uncertainty over OPEC’s production plans amid rising Libyan output are weakening its conviction.

Brent, the benchmark for more than half the world’s oil, closed at US$93.42 a barrel yesterday, the lowest in more than two years.

Prices slumped as US crude production climbed last month to the highest level since 1986 and the Organization of Petroleum Exporting Countries pumped the most oil in a year.

The International Energy Agency cut its projections for global consumption growth through next year due to a weakening economic outlook while Saudi Arabia lowered prices this week, signalling the world’s biggest exporter is prepared to let them fall rather than cede market share.

“Given the lack of strong catalyst for higher prices, the path of least resistance seems for further declines,” Goldman analysts including New York-based Jeffrey Currie said in an e-mailed report.

“However, the downside from here starts to become limited as further declines in Brent prices would help rebalance the oil market, incentivizing stronger demand growth and weighing on production growth in the US.”

Brent for November delivery was 37 cents higher at US$93.79 a barrel on the London-based ICE Futures Europe exchange, at 11:14am Singapore time.

Futures plunged 16% in the three months to Sept 30, the worst quarterly performance since June 2012. They have declined 15.4% this year.

WTI spread
West Texas Intermediate, the US benchmark grade, for November delivery was at US$91.38 a barrel in electronic trading on the New York Mercantile Exchange, bringing its decline this year to 7.2%.

WTI’s discount to Brent shrank to US$2.41 yesterday based on settlement prices, the smallest since August 2013.

The spread is “far too narrow given logistic economics” and needs to “widen,” Goldman said in its report.

At this level, the spread will boost US imports, increasing inventories on the Gulf Coast and at Cushing, Oklahoma, the delivery point for WTI, Goldman said.

The bank forecasts the difference will rebound to US$10 a barrel in 2015.

The chance of a price recovery to Goldman’s US$100 forecast for 2015 may also be capped if longer-term prices, which have risen this year, catch up with the slide in prompt contracts, the bank said.

“Stabilizing geopolitical risk and growing perception of a demand-constrained oil market could well combine to reverse some of this remaining US$4 a barrel year-to-date rally in five-year forward Brent prices,” it said.

Brent’s decline probably isn’t sustainable, data compiled by Bloomberg show.

On the weekly chart, the relative strength index has dropped to 27.4, the lowest level since June 2012, when futures fell to an 18-month low of less than US$90 a barrel.

Readings below 30 typically signal a market is oversold and may rebound.