Goldman Sachs Slashes Oil Price Outlook Amid OPEC Turmoil (USO)

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Crude oil futures continued to surge Monday, posting an eight consecutive daily advance, the longest such streak in months. Despite Opec's attempts to lift prices, oil is trading near nine-month lows as fundamentals remain unsupportive.

Crude oil prices settled sharply higher in futures market on Friday.

"This has been enough to encourage some guarded optimism among investors that the oil market is beginning to move back into balance", Cailin Birch, a commodities Analyst at the Economist Intelligence Unit, said in a statement. U.S. crude oil production slid by 100,000 b/d from a week ago to 9.25 million b/d in the week to June 23, the EIA reported last week, sowing the seeds of doubt about shale's continued rebound.

Commerzbank analysts was quoted by Reuters as saying: "At current output levels, OPEC will not succeed in eliminating the inventory overhang completely by year's end".

"That arithmetic ought to persuade OPEC and Russian Federation of the value of sticking with it, maybe cutting sufficient extra barrels to offset Libya and Nigeria increases and reaping the reward of higher overall 2017 revenues", said Fyfe.

In a separate report, the bank says it expects a mixed performance from the region's economies depending on how buffered they are from swings in the oil price.

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However, Baker Hughes said the US rig count dropped last week for the first time in 23 weeks, hinting that domestic drillers are also getting impatient with sub-$50 oil. OPEC said that Russian Federation and 10 other non-OPEC countries on Saturday said that they will bring a reduction in oil production by more than 5.0 million barrels per day to stop the significant decline in income.

Despite the dip in United States drilling, the total rig count was still more than double the 341 rigs in the same week a year ago, according to energy services firm Baker Hughes Inc.

The move higher is a sharp turnaround from last month, when US crude prices hit a 10-month low and Brent fell to its lowest level since November. So if demand rises over time and Opec sticks to its deal in the longer term, we see a forward price anchor for WTI in the $45 to $50/bbl range and a backwardated structure of $3 to $7/bbl.

Rising U.S. production has undermined some of the impact of the OPEC-led cuts. U.S. data showed investors increased short holdings of crude futures and options to close at their highest in a year. The next largest proved oil reserves are in Saudi Arabia with 268 billion barrels and Canada with 173 billion barrels.

April output fell slightly to 9.08 million barrels a day, the Energy Information Administration said Friday, and was 190,000 barrels lower than the agency's preliminary weekly estimates.