Oil production outside the Organization of the Petroleum Exporting Countries is seen falling by the most in 24 years, while the oversupply in world markets now appears worse than thought, making it possible for prices to hit $20 a barrel.
On Friday, the International Energy Agency said OPEC output will rise, but non-OPEC output will drop by nearly 500,000 barrels a day next year, with production in Russia and the North Sea sinking to the lowest levels since the fall of the Soviet Union.
The latest slump in oil prices also "could stop U.S. growth in its tracks" and has "dimmed the prospects for a recovery in U.S. drilling activity," the IEA added in a report.
The number of U.S. oil rigs in operation fell in the latest week by 10 to 652, Baker Hughes (BHI) said, marking a second straight drop after a brief rally that tracked a short-lived recovery in oil prices.
U.S. Drivers Add To Demand
Meanwhile, the IEA said low prices are lifting world demand that OPEC's low-cost producers should meet via increased production. Indeed, the energy watchdog said U.S. motorists are sending domestic gasoline demand to an eight-year high.
That should give OPEC even more incentive to keep production high. The cartel shocked energy markets last November when it refused to trim production targets amid robust U.S. output. Crude collapsed, and OPEC members like Saudi Arabia pumped at record levels to force cuts from U.S. shale firms and protect market share.
No Relief From Saudis
Saudi Arabia hasn't backed down and on Friday said it doesn't support holding an emergency OPEC meeting to prop up prices, sources told Reuters. Venezuela had asked for a meeting as the country struggles to generate revenue amid cheap oil.
U.S. crude futures settled down 2.8% to $44.63 per barrel, and Brent crude ended down 1.5% to $48.14. Oil's slide could get worse, according to a Goldman Sachs report Friday.
Analysts there said the market was even more oversupplied than previously estimated, adding that because production takes months to slow down after rigs are removed, Brent oil could fall as low as $20 per barrel. But Goldman sees $20 oil as only "transient" and would help "immediately rebalance" supply and demand.
Goldman sees U.S. crude averaging $45 per barrel next year, down from its earlier estimate of $57. It now sees Brent down to $49.50 per barrel in 2016 vs. a prior view for $62 as Iran ramps up production following the removal of economic sanctions.
U.S. firms, which have emerged as swing producers relied upon to put markets back in balance, are cutting back. The Energy Department said last month that production in June was 9.3 million barrels per day, down from 9.4 million in May and a peak of 9.6 million in April. Last week, output hit 9.14 million barrels per day.