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Oil Report: Goldman Sachs sees fall to $65 a barrel by end of 2019 as US output grows

Last updated: 14:35 02 Nov 2018 EDT, First published: 10:35 02 Nov 2018 EDT

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One might expect the market to be nervous ahead of the impending US sanctions on Iran, but the oil price dipped this week.

Adequate oil supply and an uncertain global economic outlook also dampened sentiment.

In Friday trading, Brent crude was priced above US$72 with WTI (West Texas Intermediate) holding above US$63 a barrel.

As Washington hopes to curtail all Iranian oil exports, the market appears to have this priced in.

At the start of business on Monday next week, President Donald Trump will no doubt be eagerly surveying oil tanker movements from Iran and issuing stern warnings to countries not complying.

Several countries appealed for and got short-term waivers; eight countries in all, including India, China, Turkey, South Korea and Japan.

Goldman Sachs estimates that Iranian crude exports will fall to 1.15 million barrels by the end of the year, down from 2.5 million barrels a day mid-year.

While many Iranian barrels might be off the market, we’re seeing an increase from other sources.

Russia and Saudi Arabia continue to increase output as does OPEC and the USA.

Data from Russia’s energy ministry this week said the country’s oil production was at a 30-year high, producing 11.41 million barrels a day in October.

OPEC production figures for last month hit 33.31 million barrels a day, the highest since 2016.

Production in the US is currently estimated to be more than 11 million barrels a day and growing.

Goldman Sachs sees an "unleashing of Permian supply growth once new pipelines come online".

With so much oil on the market, the investment bank is now predicting oil prices to fall to US$65 a barrel by the end of 2019.

In a commodities update report from Capital Economics, the outlook for a stronger oil price was less than enthusiastic.

A stronger dollar, higher interest rates and rising supply are all contributing to a softer oil price.

The report also warned that a slowdown in China painted “a subdued picture of economic growth and offers little support to the prices of industrial and energy commodities.” 

The official Purchasing Managers Index showed little growth around the world but for China, it fell to a two-year low from 50.8 to 50.2 for October.

The local CAIXIN index saw a slight rise in activity. The report concludes that "the ongoing slowdown in China underpins our forecast that most commodity prices will fall or remain weak over the next year".

Its earnings season again and it’s been a good year for the international oil companies.

ExxonMobil (NYSE:XOM) reported a 57% jump in profits, beating analysts’ expectations, mainly due to the higher oil price this year.

The company delivered strong performance from the Permian Basin with around 555,000 barrels a day contributing to American production, thanks to investments made in early 2017.

Oil production for Chevron (NYSE:CVX) was also higher and profits were healthy as the company more than doubled its earnings for the quarter from last year. Shell (LON:RDSB) and BP (LON:BP) also reported stronger growth in profits and performance.

As we move closer to the end of the year, investors and producers will be hoping the sector remains strong.

News of a global economic slowdown will impact sentiment but the market appears to be relatively well supplied despite the imminent Iran sanction effect.

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