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How
Low Can Oil Go? Goldman Says $20 a Barrel Is a Possibility
11 September, 2011
The global surplus of oil is even bigger than Goldman Sachs Group Inc. thought and that could drive prices as low as $20 a barrel.
While it’s not the base-case scenario, a failure to reduce production fast enough may require prices near that level to clear the oversupply, Goldman said in a report e-mailed Friday while cutting its Brent and WTI crude forecasts through 2016. The International Energy Agency predicted that crude stockpiles will diminish in the second half of next year as supply outside OPEC declines by the most since 1992.
“The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016,” Goldman analysts including Damien Courvalin wrote in the report. “We continue to view U.S. shale as the likely near-term source of supply adjustment.”
Goldman trimmed its 2016 estimate for West Texas Intermediate to $45 a barrel from a May projection of $57 on the expectation that OPEC production growth, resilient supply from outside the group and slowing demand expansion will prolong the the glut. The bank also reduced its 2016 Brent crude prediction to $49.50 a barrel from $62.
WTI for October delivery fell as much as $1.16, or 2.5 percent, to $44.76 a barrel on the New York Mercantile Exchange and is heading for a weekly decline of 2.2 percent. Prices are down 15 percent this year.
Pessimism Deepens
“We now believe the market requires non-OPEC production to shift from our prior expectation of modest growth to large declines in 2016,” Goldman said. “The uncertainty on how and where that adjustment will take place has increased.”The Paris-based IEA forecast Friday that production outside the Organization of Petroleum Exporting Countries will fall by 500,000 barrels a day to 57.7 million in 2016. Shale oil production in the U.S. will drop by 385,000 barrels a day next year as a crude price below $50 a barrel “slams brakes” on years of growth, the agency said in its monthly market report.
For the global surplus to end by the fourth quarter of 2016, U.S. output will need to decline by 585,000 barrels a day, with other non-OPEC production falling by a further 220,000 barrels a day, Goldman said.
The U.S. pumped 9.14 million barrels a day of oil last week, according to data from the Energy Information Administration. While the EIA this week cut its 2015 output forecast for the nation by 1.5 percent to 9.22 million barrels a day, production this year is still projected to be the highest since 1972. U.S. crude stockpiles remain about 100 million barrels above the five-year seasonal average.
Saudi Arabia, Iraq and Iran will drive supply growth from OPEC, Goldman said. The group, which supplies about 40 percent of the world’s crude, has produced above its 30-million-barrel-a-day quota for the past 15 months.
Iranian Oil Minister Bijan Namdar Zanganeh has vowed to increase output by 1 million barrels a day once sanctions are removed as the nation seeks to regain market share.
China
unveils details of state-firm reforms as growth sputters
13 September, 2011
China
unveiled details on Sunday of how it would restructure its
state-owned enterprises (SOEs), including partial privatization, as
data pointed to a cooling in the world's second-largest economy.
The
guidelines, jointly issued by the Communist Party's Central Committee
and the State Council, China's cabinet, included plans to clean up
and integrate some state firms, the official Xinhua news agency said.
It did not elaborate.
Reform
of underperforming state-owned enterprises is one of China's most
pressing needs. But if not handled well, the restructuring could lead
to hundreds of thousands of people being laid off and social
instability.
Xinhua
said the plans included introducing "mixed ownership" by
bringing in private investment, and "decisive results" were
expected by 2020.
The
government will not force "mixed ownership", nor will it
set a timetable, giving each firm the go-ahead only when conditions
are mature, it said.
"This
reform will be positive for improving the impetus of the economy and
making growth more sustainable," said Xu Hongcai, director of
the economic research department at the China Centre for
International Economic Exchanges (CCIEE), a Beijing-based
think-think.
Partial
privatization, he added, would help establish "check-and-balance
and incentive systems" at state firms.
China's
government manages 111 companies centrally under the State-owned
Assets Supervision and Administration Commission, or SASAC. Local
governments own and manage around 25,000 state-owned companies and
the sector employs nearly 7.5 million people.
State
firms will be allowed to bring in "various investors" to
help diversify share ownership, and more state firms will be
encouraged to restructure to pave the way for stock listings, Xinhua
said.
Private
investors will be encouraged to buy stakes in state firms, buy
convertible bonds issued by state firms, or swap shares with state
firms, it said, adding steps will be taken to curb corruption during
reforms.
SOEs
will be divided into commercial and public welfare-related businesses
during the reform process. Oil and gas, electricity, railways and
telecommunications were identified as sectors that could be suitable
for limited non-state investment.
However,
Beijing will have to persuade entrenched interests at local,
provincial and national governments to relinquish some control over
state enterprises and attract investors to buy shares after one of
the worst stock market crashes in China's history.
MISSED FORECASTS
And
Xinhua indicated full-scale privatization was not on the cards,
saying the government was aiming to "cultivate a large number of
state-owned backbone enterprises with innovation capability and
international competitiveness".
The
guidelines called for a flexible and market-based compensation system
at state firms by linking pay with company performance.
The
details were issued after the government said growth in China's
investment and factory output missed forecasts in August. The data
followed weak trade and inflation readings, raising the chances that
economic growth may dip below 7 percent in the third quarter for the
first time since the global financial crisis.
"Overall,
the economy is very weak and the central bank may have to continue
cutting interest rates and banks' reserve requirement," said
Zhou Hao, senior economist at Commerzbank AG in Singapore. Zhou says
growth would probably dip below 7 percent in the July-September
quarter.
Some
economists believe growth is already much weaker than official data
suggests.
August
power output, for example, rose just 1 percent year-on-year, and
production of key industrial commodities such as steel and coal
weakened.
Growth
in fixed-asset investment, a crucial economic driver, slowed to 10.9
percent in the first eight months of 2015 - the weakest pace in
nearly 15 years, National Bureau of Statistics data showed on Sunday.
Analysts
in a Reuters poll had forecast an 11.1 percent rise, compared with
11.2 percent in January-July.
Factory
output rose a weaker than expected 6.1 percent in August from a year
earlier. Markets had expected a 6.4 percent increase, up from July's
6.0 percent.
Annual
growth in real estate investment also continued to cool to 3.5
percent in the first eight months, the weakest since early 2009, from
4.3 percent in January-July.
While
home sales and prices are slowly recovering from a slump last year -
property area sold rose at a slightly faster pace of 7.2 percent in
January-August - analysts say it will take time for developers to
work off a huge overhang of unsold houses.
Retail
sales were the single positive surprise, growing 10.8 percent in
August from a year earlier and above forecasts of 10.5 percent, the
same as July.
But
the increase did not appear to chime with corporate reports of
slowing sales.
China's
yuan devaluation in August and a plunge in stock markets since June
have fueled fears of more economic shocks, although Premier Li
Keqiang has brushed off concerns of a hard landing.
Most
analysts say the economy is slowing gradually, but not facing a hard
landing.
China's
central bank has cut interest rate five times since November and
repeatedly relaxed banks' reserve requirements (RRR) to try to boost
the sputtering economy.
Further
policy easing is widely expected and the government is trying to
boost infrastructure investment.
The
government is aiming for 2015 economic growth of around 7 percent,
which would be the slowest in a quarter century.
Growth
in China's investment and factory output in August has come in below
forecasts, in a further indication that the world's second-largest
economy is losing steam.
Factory
output grew by 6.1% from the year before - below forecasts of 6.4%.
Growth
in fixed-asset investment - largely property - slowed to 10.9% for
the year-to-date, a 15-year low.
Growing
evidence that the world's economic powerhouse is slowing down has
caused major investment market falls.
Other
indications that the economy is weakening can be seen in falling car
sales and lower imports and inflation.
Chinese
manufacturers cut prices at their fastest pace in six years, largely
on the back of a drop in commodity prices, which have dropped sharply
over the past year as demand from China faltered.
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