Oil dropped 5% to near a low of six years on Monday, accelerating its rout of one month after Goldman Sachs cut its short-term forecasts for prices and gulf producers showing no signs of controlling output.
Brent contract for February dropped $2.62 to $47.48 per barrel while US crude oil for February delivery dropped $2.20 at $46.15 a barrel.
According to Reuters, analysts at Goldman Sachs cut their forecasts of three months for Brent to $42 per barrel from $80 and for the US West Texas Intermediate contract to $41 from $70 a barrel. The bank lowered its 2015 forecast for Brent to $50.40 a barrel from $83.75 and US crude to $47.15 a barrel from $73.75.
Despite the dropping investments in US shale oil, the main reason for the current glut in supply, production is likely to take longer to come down, as reported by Goldman.
Analysts said, “To keep all capital sidelined and curtail investment in shale until the market has rebalanced, we believe prices need to stay lower for longer.”
Price Futures Group Phil Flynn said that the economic turmoil all over the world is depressing the market. He said, “I think the market would have fallen anyway. The Goldman report acknowledges what a lot of people are really expecting.”
The Wall Street Journal quoted Matt Smith, Schneider Electric SA commodity analyst as having said, “The revisions have got a huge part to do with why we’re seeing markets come off today.”
Oil prices have dropped in the recent months with unexpectedly high global supply growth, which has outpaced the demand. The Organization of the Petroleum Exporting Countries in November chose not to lower its production quota in November and put more pressure on the non-OPEC producers such as Canada and US to cut on output.
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