Global Benchmark Brent Is 17% Lower for the Year

The global oil benchmark settled below $50 a barrel for the first time in nearly six years Monday after Goldman Sachs Group Inc. slashed its forecasts, saying lower prices are needed to reduce global supplies.

The price rout weighed on other markets. Energy stocks fell, and copper slid to a five-year low.

After dropping in half in 2014, Brent oil prices are already down 17% for the year, as robust global supply growth continues to outpace demand. The Organization of the Petroleum Exporting Countries chose not to lower its production quota in November, putting more pressure on non-OPEC producers such as the U.S. and Canada to cut back on output.

Goldman Sachs and Société Générale sharply lowered their oil-price forecasts in reports released Sunday and Friday, respectively. Goldman called for the U.S. oil benchmark to average $40.50 a barrel and Brent to average $42 a barrel in the second quarter.

“Forty dollars was an outlier number just a couple months ago,” said John Kilduff, founding partner at Again Capital. Goldman’s “call for $40 oil could engender a lot of folks to throw in the towel.”

The revisions came on the heels of last week’s lower forecasts from Citigroup Inc., BNP Paribas SA and Commerzbank AG.

Traders said several U.S. refinery outages also pressured prices Monday on expectations that demand for crude oil could temporarily drop.

Brent dropped $2.68, or 5.3%, to $47.43 a barrel on ICE Futures Europe, the lowest settlement since March 2009.

U.S. oil for February delivery settled down $2.29, or 4.7%, at $46.07 a barrel on the New York Mercantile Exchange, the lowest level since April 2009. The U.S. benchmark has fallen 14% so far this year.

Whereas many analysts said last autumn that U.S. shale-oil producers wouldn’t be able to produce profitably if prices fell below $80 a barrel, market watchers now say much lower prices are needed to reduce U.S. supply growth.

Goldman sees Brent prices averaging $50.40 a barrel this year, down from its previous call of $83.75 a barrel. For the U.S. benchmark, Goldman expects prices to average $47.15 a barrel in 2015, down from $73.75 in its last forecast.

Goldman is considered a commodities-focused investment bank, and its forecasts are closely watched.

Société Générale lowered its 2015 Brent price forecast to $55 a barrel, from $70 a barrel, and its U.S. forecast to $51 a barrel, from $65 a barrel.

“Markets are still pricing in a very ugly first half of this year,” Michael Wittner, Société Générale’s head of oil research, told The Wall Street Journal. He said he expects global oil storage to build by 1.6 million barrels a day in the first quarter and 1.7 million barrels a day in the second quarter.

Drivers are enjoying the benefit of lower oil prices, with U.S. gas prices averaging $2.13 a gallon Monday, down $1.18 a gallon from a year before, according to AAA.

Later this week, oil markets will be focused on monthly reports from the U.S. Energy Information Administration, OPEC and the International Energy Agency. Any cuts to global oil demand forecasts for this year could push oil prices down further.

Traders are also watching China’s oil import data, which is expected Tuesday, and the expiration of the February Nymex crude-oil options contract on Wednesday, said Bill Baruch, senior market strategist at brokerage iiTrader in Chicago.

Gasoline futures for February delivery fell 4.87 cents, or 3.7%, to $1.2745 a gallon, the lowest settlement since March 2009. Diesel futures fell 4.89 cents, or 2.9%, to $1.6541 a gallon, the lowest since July 2009.

Sources: WSJ – Oil Prices Fall to Fresh Lows

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