Oil’s collapse into a bear market is excessive because there’s no oversupply to justify the selloff, according to Goldman Sachs Group Inc.
The bank is “near-term constructive about prices” after they fell too much, too soon, analysts including Jeffrey Currie, the head of commodities research in New York, wrote in a report e-mailed today. While expectations of a glut have driven down crude, the risk of a near-term shortage may increase as forward prices of benchmarks including West Texas Intermediate and Dubai crude discourage stockpiling, it said.
Oil futures slumped to the lowest in four years in London amid the highest U.S. output in almost 30 years and weakening global demand growth. Members of the Organization of Petroleum Exporting Countries are responding by cutting prices, prompting speculation that they will compete for market share rather than reduce production.
“The ‘supply glut’ is not yet here today, it exists in expectations,” the Goldman analysts wrote. “Prices have likely overshot to the downside.”
The lower prices go, the tighter the balance between supply and demand will become, Goldman said. With every 10 percent drop in oil prices, consumption grows by 0.15 percent, the bank estimated. Brent crude’s slump of almost 30 percent from its June peak may mean additional demand of almost 500,000 barrels a day, according to the bank.
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