Brent drops below $86 after Goldman cuts price forecasts

By Osamu Tsukimori

TOKYO (Reuters) - Brent crude futures fell below $86 a barrel on Monday after Goldman Sachs cut its price forecasts for the contract and for U.S. oil in the first quarter of next year by $15.

The U.S. investment bank said in a research note on Sunday that it had cut its forecast for West Texas Intermediate to $75 a barrel from $90 and that for Brent to $85 from $100, with rising production in non-OPEC countries outside North America expected to outstrip demand.

The bank expects WTI to fall as low as $70 a barrel and Brent to hit $80 in the second quarter of 2015, making the U.S. investment bank the most bearish of major financial institutions that have been carving back their estimates in recent weeks, citing global growth concerns and ample supplies.

Goldman's projections contrast sharply with those of Standard Chartered Bank's analysts who last week pared their forecast for 2015 Brent crude oil by $5 but only to $105 a barrel.

London Brent crude for December delivery was trading 19 cents lower at $85.94 a barrel at 0612 GMT. On Oct. 16 it had dropped below $83, its lowest in almost four years.

U.S. crude for December delivery was up 2 cents at $81.03 a barrel.

Goldman's forecasts had an impact on the market even though some other researchers have already projected a slide in Brent and U.S. oil to around $75 a barrel, said Ken Hasegawa, a commodity sales manager at Newedge Japan.

"The market is worried about further weakness as Goldman Sachs said, and doubts beget doubts as there are no indications of a clear sign of recovery in demand, while supplies are no doubt in excess," he said.

"It's not at the stage where participants could buy oil wholeheartedly believing it's a bargain now."

Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting, said: "The fall in prices despite continued easing of worries over the global economic recovery is likely to have been prompted by the Goldman Sachs forecasts ... I personally think prices have room for declines though not as steep as Goldman."

Increased domestic crude stores have depressed the price of short-term futures contracts. For the first time since January, U.S. crude futures are poised to flip into contango, a structure in which prompt prices are below longer-dated contracts, typically signalling a weaker market.

HIGH SUPPLIES

The 12-member OPEC meets on Nov. 27 to consider adjusting its output target of 30 million barrels per day for the first half of 2015. So far only a minority of members have called for an output cut.

Saudi Arabia has previously sent signals it is comfortable with markedly lower oil prices and willing to maintain high supply levels to compete for market share.

Kuwait's oil minister said there was no negative effect on the country's development plan from lower oil prices, state news agency KUNA reported on Sunday.

Global oil supply remains high despite disruption in producers such as Iraq and Libya. Yemen resumed exports from its main oil pipeline on Saturday, a day after an attack by tribesmen temporarily halted flows, industry sources said.

Elsewhere, the Federal Reserve's two-day meeting, which begins on Tuesday, will be watched for clues on whether any slowdown in Europe or elsewhere could affect the central bank's monetary policy.

(Reporting by Osamu Tsukimori; Editing by Joseph Radford, Anand Basu and Alan Raybould)