Brent falls to $85 amid supply glut, lower price forecasts

Brent crude extended its decline to a third day, dropping towards USD 85 a barrel on Tuesday, still under pressure from a Goldman Sachs report that slashed the investment bank's oil price forecasts amid a global supply glut.

Citing rising production and insufficient demand, Goldman Sachs on Sunday cut its forecast for Brent to USD 85 a barrel from USD 100 for the first quarter of 2015 and reduced its projection for US crude to USD 75 from USD 90.

Analysts from other major banks have also cut forecasts for 2014 and 2015 crude oil prices, citing global growth concerns, a strengthening dollar and ample supplies.

"It will take time to mop up this excess supply," said Tony Nunan, oil risk manager at Tokyo's Mitsubishi Corp.

"It will take either a major OPEC cut or it will take a slowdown in shale oil. And the wild card would be a major disruption in Libya or Iraq, which could happen still."

London Brent crude for December delivery was trading 44 cents lower at USD 85.39 a barrel by 0350 GMT, after dropping 30 cents by the close on Monday.

US crude for December delivery was down 28 cents at USD 80.72 a barrel. The West Texas Intermediate futures hit USD 79.44 on Monday, the lowest level since June 2012.

US oil may break support at USD 79.95 per barrel and fall further to USD 77.60, a Reuters market analyst, Wang Tao, said on Tuesday.

The meeting of the Organization of the Petroleum Exporting Countries (OPEC) next month in Vienna is shaping up to be one of the most important in years, with Brent having lost more than USD 30 from a mid-June peak on the supply-demand imbalance.

Some OPEC members, such as Saudi Arabia, Iran and Kuwait, have indicated the group was unlikely to cut output to bolster oil prices that slid to a near four-year low earlier this month. Although other members have said they would support cuts, little momentum has built up around the idea of cutting production targets for the first time since the 2008 financial crisis.

Despite disruption in producers such as Libya and Iraq, global oil supply remains high.

In the United States, commercial crude stocks were forecast to have increased 3.5 million barrels last week, while stocks of distillate and gasoline likely fell, according to a preliminary Reuters survey ahead of weekly inventory reports out of the world's biggest oil consumer.

Industry group the American Petroleum Institute (API) will issued its report later in the day, and the US Department of Energy's Energy Information Administration (EIA) will follow with its weekly data on Wednesday.

Weak US economic data on Monday, while indicating that the economic recovery of the world's largest oil consumer still has some way to go, also reinforced expectations that the Federal Reserve will not hike interest rates anytime soon.

An increase in interest rates would usually support the dollar and make oil more expensive for holders of other currencies, putting pressure on demand and prices.