©2015 Bloomberg News
Grant Smith

(Bloomberg) — Oil traded near $45 a barrel in New York as a further pullback in U.S. drilling failed to temper expectations that the global oversupply will persist for most of next year.

West Texas Intermediate futures were little changed after declining 2.8 percent Friday when Goldman Sachs Group Inc. said the endurance of the surplus could push prices down to $20 a barrel. The discount on front-month Brent futures versus later deliveries, an indicator of oversupply, was near the widest in three months. The number of rigs in use slid to the lowest level in almost two months, Baker Hughes Inc. said on Friday.

Oil is down more than 25 percent from its closing peak in June on speculation the global oversupply will be prolonged. The International Energy Agency predicts crude stockpiles won’t diminish until the second half of next year, and said even that forecast could be derailed if Iran can boost exports after the removal of sanctions.

“You need to line your ducks in a row in terms of U.S. supply and rig count,” Harry Tchilinguirian, head of commodities strategy at BNP Paribas SA in London, said by e-mail. “Rig count and U.S. supply have fallen for two weeks, and that’s all very positive, but you need to see this trend be confirmed before the market buys into the re-balancing argument.”

West Texas Intermediate for October delivery fell 20 cents to $44.43 a barrel on the New York Mercantile Exchange at 1:15 p.m. London time. The contract slid 3.1 percent last week. The volume of all futures traded was about 25 percent below the 100- day average. Prices have decreased 17 percent this year.
Global Supply
Brent for October settlement, which expires Tuesday, fell 60 cents to $47.54 a barrel on the London-based ICE Futures Europe exchange. It lost 75 cents, or 1.5 percent, to $48.14 on Friday. The more-active November future slid 51 cents to $48.53. The discount on the front-month expanded to 98 cents, having reached $1 a barrel on Sept. 10, the widest since June 15.

The Organization of Petroleum Exporting Countries cut 2016 estimates for non-OPEC output by 110,000 barrels a day, its Vienna-based secretariat said Monday in its monthly market report. Supplies from non-OPEC nations such as the U.S., Canada, Russia and Brazil will increase by 160,000 barrels a day to 57.6 million in 2016, according to the report.
Goldman Scenario
While $20 a barrel oil is not Goldman’s base-case scenario, a failure to reduce production fast enough may require prices near that level to clear the oversupply, the bank said in a report e-mailed Friday while trimming its Brent and WTI crude forecasts through 2016. U.S. shale is the likely near-term source of output cuts, Goldman said.

Drillers in the U.S. idled rigs for a second week, reducing the number of active machines by 10 to 652, Baker Hughes said Friday. The nation’s output declined for a fifth week through Sept. 4 to average 9.14 million barrels a day, the Energy Information Administration said Thursday.

OPEC has pumped above its quota for more than a year, fueling the global surplus. Iraq, the second-biggest member of the group, produced 3.76 million barrels of oil a day in August, compared with 3.7 million a day in July, according to an e- mailed statement from the state oil marketing company known as SOMO.

Hedge funds added the most bullish oil bets since April in both WTI and Brent in the week to Sept. 8 on optimism that the global oversupply will disappear as producers slow output. Money managers boosted their net-long WTI position by 16,855 contracts to 132,857 futures and options, according to data from the Commodity Futures Trading Commission.
–With assistance from Ben Sharples in Melbourne.
To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net; James Herron at jherron9@bloomberg.net Dylan Griffiths, Raj Rajendran