Oil below $70 as U.S. shale surge looms over bullish banks

LONDON (Bloomberg) -- Brent crude traded below $70/bbl as the specter of expanding U.S. supply was weighed against Wall Street banks’ growing faith in a price rally.

The benchmark grade is on course to end the week lower, after being whipsawed by concern about rising American production and optimism over rosy outlooks painted by forecasters including Goldman Sachs Group Inc. Prices extended Friday’s decline after U.S. jobs data pushed the dollar higher.

Brent has held around these levels since mid-January, after being driven higher by shrinking U.S. stockpiles and a weaker dollar earlier in the year. Goldman Sachs hiked its price forecast Thursday, saying the market is now likely balanced and strong global growth will buoy demand in emerging economies. Morgan Stanley and JPMorgan Chase & Co. also raised their outlook last month. Higher prices are an incentive for American drillers to pump more.

“There’s no doubt shale players will respond to higher prices,” says Jan Edelmann, commodity analyst at HSH Nordbank AG. “Given the momentum of the world economy though, the risks are skewed to the upside for oil demand.”

Brent for April settlement was at $69.20/bbl as of 8:37 a.m. New York time. The contract rose 1.1% to $69.65/bbl on Thursday. Total volume traded was about 34% below the 100-day average.

West Texas Intermediate for March delivery slid 0.1% to $65.72/bbl on the New York Mercantile Exchange, and is down about 0.5% this week. The April contract traded at a discount of $3.89 to Brent for the same month.

U.S. output surged above 10 MMbbl for the first time in more than four decades in November, the Energy Information Administration reported Wednesday. The next glimpse into U.S. supply growth will come from the weekly Baker Hughes rig count on Friday. Drillers added 12 rigs in the week to Jan. 26, the most since March.

Goldman Sachs sees Brent crude reaching $75/bbl over the next three months and climbing to $82.50 within six months. Its previous estimate for both periods was $62/bbl. The bank’s bullish outlook is driven by its revised demand forecasts, reflecting stronger economic growth in emerging markets. A growing raft of analysts are now starting to consider the prospect of OPEC over-tightening the market.

Oil-market news. Russian Energy Minister Alexander Novak plans to meet key oil-company executives for a regular discussion of annual results, two officials with knowledge of the matter said, asking not to be identified as the information isn’t yet public. Oilmen, wildcatters and refiners are reaping billions in windfalls from President Donald Trump’s new tax code, helping boost the staying power of old-style energy even as the world searches for cleaner fuels. ConocoPhillips has begun deploying the spoils of the oil price rally, announcing a dividend boost and share buybacks along with a $400 million expansion in Alaska in its fourth-quarter earnings report.