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Goldman Sachs sees oil tumbling by Oct, with WTI at US$45

[NEW YORK] Goldman Sachs expects the oil rally since the end of the first quarter to fizzle and US crude futures to trade near the year's low at around US$45 a barrel by October, a report from the influential Wall Street firm said.

"Despite this perception of improving fundamentals, we find that the global market imbalances are in fact not solved and believe that the rally will prove self-defeating," said the report authored by Goldman's Global Head of Commodities Research Jeffrey Currie and analyst Damien Courvalin.

It was the second broadly bearish call on crude prices in less than a week from the firm, after the note circulated on Saturday by its equities team that projected Brent crude futures at US$55 by 2020. Brent now trades above US$65.

The latest report, originally distributed on Monday, said US crude futures, also known as West Texas Intermediate (WTI), which now trades at around US$58 a barrel, will likely drop by October to a level near the March bottom of US$42.03, suggesting a double-dip after the earlier low and recovery since. "Prices will retrace to their lows by October ($45/bbl WTI) to finally correct both the hydrocarbon and capital surpluses," the report said.

It said although its 12-month forecast for WTI was higher at US$55, its call of US$53 in the first quarter of 2016 was below the price realized by US producers in the first quarter of this year.

Goldman said it expected US crude futures to recover gradually through 2016 to reach US$60 - its new estimate of the marginal cost of production in shale oil - by the end of next year. "This forecast path reflects our expectation that long-term oil prices remain too high relative to the 2016 balance and shale's breakeven, while the greatest weakness in timespreads will be around turnarounds," it said, referring to price gaps between different-dated futures leading up to refinery maintenance periods.

The report forecast the spread between WTI and Brent to average US$6 a barrel in 2015 and US$5 in 2016. The spread stood at around US$6 on Tuesday, in Brent's advantage.

Productivity gains in shale are expected to put more pressure on US crude after 2016, said Goldman, which forecast WTI to trade at US$60 in 2017 from its previous forecast of US$65, and reach US$50 by 2020.