Goldman Sachs Group Inc. (GS:US) said crude production in the Organization of Petroleum Exporting Countries will decline this year by more than the bank previously estimated because of renewed disruptions in Libya.
OPEC’s output will decline by 760,000 barrels per day from last year, according to the bank, which had previously projected an annual loss of 570,000 a day. The supply reduction will keep Brent futures supported at $110 a barrel despite an accumulation in oil inventories amid weaker-than-expected fuel demand, Goldman said. Libya’s production will remain capped at 650,000 barrels a day this year as a result of political disputes, the bank predicted.
“The conflicts in the country’s east appear more permanent in nature given the diversity of involved parties, which makes a near-term resolution seem increasingly unlikely,” analysts led by Jeffrey Currie in New York said in a note to clients on Oct. 28. “We believe that production levels will only recover to around 1.3 million barrels per day through 2014.”
Output losses among OPEC members have buoyed oil prices against muted growth in world oil demand, which expanded by 400,000 barrels a day in the third quarter from a year ago compared with 1.5 million a day in the second, Goldman said. Saudi Arabia, the group’s biggest member, will need to keep output near record levels above 10 million barrels a day for the rest of the year to compensate for the disruptions in other OPEC nations, according to the bank.
OPEC’s production slumped to a near two-year low of less than 30 million barrels a day in September as labor unrest crippled Libya’s export facilities and as Iraq conducted maintenance at its southern oil terminal, the International Energy Agency said on Oct. 11.
“The potential for further disruptions in Libya” means that crude prices may exceed the bank’s current forecasts, according to Goldman. Brent, trading today at $108.95 a barrel on the London-based ICE Futures Europe exchange, will advance to about $110 in three months’ time, Goldman said.
Production from OPEC member Iran will also remain “materially affected by international sanctions through to the end of the year and 2014,” despite the resumption of talks with western governments about the country’s nuclear program, Goldman said.
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