Jan 12, 2015/Bloomberg

Oil fell to the lowest level in more than 5 1/2 years after Goldman Sachs Group Inc. and Societe Generale SA reduced their price forecasts and Venezuela called on OPEC producers to work together to spur a rebound.

West Texas Intermediate decreased as much as 5.1 percent to $45.90 a barrel, and Brent 5.9 percent to $47.18. Crude has to “stay lower for longer” if investment in shale is to be curtailed to re-balance the global market, according to Goldman analysts. Prices need to return to $100 a barrel for economic equilibrium, Venezuelan President Nicolas Maduro said in Iran during a tour of Middle Eastern OPEC members.

“The price forecast cuts by both Goldman and Societe Generale reinforce the fears that have driven us down to these levels,” Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut, said by phone. “We’re hunting for a bottom, but it’s anyone’s guess where that will be.”

Oil slumped almost 50 percent last year, the most since the 2008 financial crisis, amid a supply glut estimated by Qatar at 2 million barrels a day. The Organization of Petroleum Exporting Countries is battling a U.S. shale boom by resisting production cuts, signaling it’s prepared to let prices fall to a level that slows American output that’s surged to the highest level in more than three decades.

WTI for February delivery declined $2.31, or 4.8 percent, to $46.05 a barrel at 10:51 a.m. on the New York Mercantile Exchange. It touched the lowest level since April 21, 2009. Total volume was 44 percent above the 100-day average for the time of day.

Brent Trading

Brent for February settlement dropped $2.83, or 5.7 percent, to $47.28 a barrel on the London-based ICE Futures Europe exchange. The contract reached the lowest since March 2009. Volume for all futures traded was 52 percent higher than the 100-day average. The European benchmark crude traded at a $1.30 premium to WTI, the least since Oct. 16.

WTI will trade at $41 a barrel and Brent at $42 in three months, Goldman said in a report distributed today, citing excess U.S. storage capacity and predicting inventories will increase over the first half of this year. It also cut its price estimates for six and 12 months.

“To keep all capital sidelined and curtail investment in shale until the market has re-balanced, we believe prices need to stay lower for longer,” said Goldman analysts including Jeffrey Currie in New York. “The search for a new equilibrium in oil markets continues.”

Oil Rigs

Societe Generale reduced its average WTI price for this year to $51 a barrel from $65 in a Jan. 9 report from Michael Wittner, the bank’s New York-based head of oil research. Brent will average $55 a barrel in 2015, down from a previous estimate of $70.

Rigs seeking oil in the U.S. fell by 61 to 1,421, Baker Hughes Inc. said Jan. 9, extending the five-week decline to 154. It was the largest drop since February 1991, which also followed a slide in prices before the start of the Persian Gulf War.

“The week-to-week drop in the rig count was the biggest since the first Gulf War back in 1991,” Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania, said by phone. “This is a major change but we probably won’t see lower output this year. We won’t see the ramifications of this and the lessening of the glut until 2016.”

OPEC needs to reach a consensus with other producers to “converge at a common strategy to benefit the oil market and stabilize the global economy,” Maduro said in comments broadcast on state television over the weekend.

Output Target

The 12-member group decided to maintain its collective output target at 30 million barrels a day at a meeting on Nov. 27. It’s competing for market share amid surging output in the U.S., where production expanded to 9.14 million a day through Dec. 12, Energy Information Administration data show. That was the most in weekly records that started in January 1983.

Oil won’t return to $100 a barrel again, Saudi billionaire businessman Prince Alwaleed bin Talal said, according to USA Today.

“If supply stays where it is, and demand remains weak, you’d better believe it is going to go down more,” the newspaper reported him as saying.

Gasoline futures fell 4.22 cents, or 3.2 percent, to $1.281 a gallon, after touching $1.2767, the lowest level since March 2009. Ultra low sulfur diesel slipped 3.99 cents, or 2.3 percent, to $1.6631. Diesel reached $1.6601, the lowest level since September 2009.

Regular gasoline at U.S. pumps fell to the lowest level since May 2009. The average retail price slipped 0.9 cent to $2.13 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group. Pump prices were around $2.05 a gallon when oil was last below $50 a barrel.