Oct. 20 (Bloomberg) — Goldman Sachs Group Inc. said “initial” production cuts by OPEC, supplier of 40 percent of the world’s oil, may fail to halt a slide in prices that have fallen 50 percent from a record in July.
The Organization of Petroleum Exporting Countries, which meets Oct. 24 in Vienna, is facing the weakest growth in demand since 1993 just as new fields come on line from Angola to the Gulf of Mexico. Members may cut daily output by as much as 2 million barrels, President Chakib Khelil said yesterday.
“Historically the first cut that OPEC made in a recessionary environment has not supported the oil price, and only subsequent cuts” did, Goldman’s London-based analysts, Michele Della Vigna, Henry Morris, Hugh Selby-Smith and Henry Tarr, said in a report dated Oct. 17.
Global oil demand has declined as a financial crisis in the U.S., the world’s biggest energy consumer, spreads and banks tighten lending, tipping the world economy close to a recession. OPEC lowered its forecast for demand in 2009 last week, saying consumption will be 450,000 barrels a day less than expected at 87.21 million.
Goldman’s oil supply and demand model currently assumes an OPEC cut of 1 million barrels a day between the third quarter of 2008 and first quarter of 2009.
“Any cut beyond this level would be viewed positively by the market,” the analysts said.
OPEC Production
An OPEC output cut of 1 million barrels a day would help to avoid a build-up of more than 300,000 barrels a day of inventories in 2009, they said.
“In our view, OPEC will protect $60 a barrel oil” average in 2009, the Goldman analysts wrote. “However, we highlight the risk that the price may undershoot this level until further cuts are announced.”
Iran, Nigeria, Venezuela and Indonesia need a crude price of more than $80 a barrel to balance their national budgets, and the United Arab Emirates needs $30, while Saudi Arabia, the biggest OPEC member, requires $54 a barrel, the analysts said.
Oil in New York traded at $73.63 a barrel at 4:52 p.m. Singapore time. Prices have fallen from the record $147.27 a barrel reached on July 11.