According to a Goldman Sachs report issued Friday, oil price could sink even lower to $20 per barrel if top oil exporters do not take the necessary measures to reduce overproduction worldwide.
Although the new low revisited last winter’s levels, Goldman analysts are now concerned about the outlook of financial and basic metrics which are this time “much weaker.” Additionally, oil demand may not improve any time soon in developing countries since these countries’ markets still show signs of regression.
The projected new low in oil prices is the worst in more than a decade, analysts said. Nevertheless, the official forecast of Goldman for next year is $45. The $20 limit is the lowest it could get and the worst-case-scenario which is unlikely to happen.
On the other hand, the new projection for 2016 is significantly lower than the initial projection of $57 per barrel. But, the estimates for 2017 remain unchanged at $60 per barrel.
The new projection though it is unlikely to occur has already disturbed energy markets since shareholders worldwide continue to struggle with the slipping prices of commodities.
According to Goldman, Brent index for crude oil fell two percent on early hours Friday to $47.76, and so did West Texas Intermediate.
But oil prices don’t seem to redress too soon since the three major factors that fuel the collapse are still out there. Prices were halved in the past year and they may go even lower since the market isn’t able to absorb the surplus. Moreover, the struggles on Asian markets generated by China further complicate the situation, while the U.S. is now tapping new reserves in the Arctic.
Additionally, Saudi Arabia and other Gulf producers announced that they won’t reduce the output despite other OPEC members’ warnings of a market collapse. All analysts’ eyes are now on the Organization of Petroleum Exporting Countries and non-OPEC members including Russia, and everyone is hoping that the producers will lower their oil output to protect prices.
While some countries that heavily rely on oil cash to sustain their economy such as Venezuela are being hit the hardest by the plunging prices, top exporters also face a series of challenges that often result in insolvency.
Goldman market watchers acknowledged that they do not know when exactly the oversupply problem would go away, but the investment patterns in North America make them believe that oil production in the U.S. would soon be brought to a halt if not reverse.
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