OPEC on Monday trimmed estimates for oil supplies from outside the group in 2016 as the slump in prices takes its toll on the U.S. shale-oil industry.
The Organization of the Petroleum Exporting Countries cut 2016 estimates for non-OPEC output by 110,000 barrels a day, its Vienna-based secretariat said in its monthly market report. Still, the group sees non-OPEC supply expanding slightly next year. The International Energy Agency on Friday predicted a contraction of 500,000 barrels a day, the biggest since 1992.
"There are signs that U.S. production has started to respond to reduced investment and activity," OPEC said in the report. "Indeed, all eyes are on how quickly U.S. production falls."
West Texas Intermediate crude futures have tumbled more than 50 percent in the past year, triggering a cutback in drilling that threatens to end the nation's shale-oil boom. Prices have fallen as OPEC follows Saudi Arabia's strategy of defending its share of the global market against shale and other competitors.
West Texas Intermediate crude fell 63 cents to settle at $44 a barrel Monday on the New York Mercantile Exchange. It was the lowest close since Aug. 27. Brent crude for October settlement, which expires today, fell $1.77, or 3.7 percent, to end the session at $46.37 a barrel on the London-based ICE Futures Europe exchange.
"We had another set of disappointing economic data out of China, which is raising concern that demand will slacken," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. "This adds to the feeling that global oversupply will persist."
Supplies from non-OPEC nations such as the U.S., Canada, Russia and Brazil will increase by 160,000 barrels a day to 57.6 million in 2016, according to the OPEC report. In last month's report, OPEC had projected that non-OPEC supplies would expand by 270,000 next year.
The organization reduced 2016 estimates for U.S. supply by 103,000 barrels a day, projecting the country's total oil output at 13.97 million barrels a day.
Slowing U.S. output growth, combined with signs of strengthening demand, "could contribute to a reduction in the imbalance of oil-market fundamentals," OPEC said. "However, it remains to be seen to what extent this can be achieved in the months to come."
As a result of the weaker outlook for non-OPEC supply, the organization increased projections for the amount of crude it will need to pump next year by about 200,000 barrels a day to 30.3 million. That's still about 1.2 million less than the 31.54 million daily barrels its members produced in August.
Output from OPEC's 12 members increased by 13,200 barrels a day in August, according to data the group compiles from media and other institutions. In separate data submitted directly by member nations, Saudi Arabia, the group's biggest producer, reported that it cut production by 96,500 barrels a day to 10.265 million, the lowest level since February.
Goldman Sachs Group Inc. said Friday that a growing surplus could deflate oil prices to $20 a barrel. While that's the bank's worst-case scenario, a failure to curb output fast enough may require prices to drop near that level to drain oversupply, according to a report emailed Friday that also trimmed its Brent and WTI crude forecasts through 2016. U.S. shale is the most likely near-term source of cuts, the bank said.
Drillers in the U.S. idled rigs for a second week, reducing the number of active machines by 10 to 652, Baker Hughes Inc. said Friday.
"Production is coming down pretty quickly in the U.S.," Francisco Blanch, Bank of America Corp.'s head of commodities research in New York, said in an interview with Bloomberg TV and Radio. The oil market should be "balanced by the end of the year."
Morgan Stanley Investment Management Inc. on Monday predicted a commodities bear market that could last for many years, with oil dropping as low as $35 a barrel because production cuts haven't been sufficient to wipe out the global surplus.
China's industrial slowdown is weighing on demand growth while a drop in currencies, including the Russian ruble, has shielded some companies from lower oil prices, deterring them from cutting output, said Ruchir Sharma, Morgan Stanley's head of emerging markets.
"A long winter in commodities is what we have to be prepared for," he said. "From places like Russia to Australia, the currencies have fallen a lot, and so the marginal cost of production for some of these commodities in those countries hasn't fallen that much."
Information for this article was contributed by Grant Smith, Mark Shenk and Rakteem Katakey of Bloomberg News.
Business on 09/15/2015