Goldman Sachs: Oil Prices Could Fall To $30 A Barrel

Goldman Sachs President Gary Cohn told CNBC on Wednesday he is very concerned about the short-term window for oil. He thinks crude prices could fall to $30 a barrel. One of the major reasons is the industry runs out of storage space.

With the winter heating oil season ending, refineries are turning to producing more gasoline for the summer driving season and that implies they will not need crude oil for weeks or months, depending on turnaround and maintenance time, he said.

“That crude oil backs up in the system (…) I’m concerned we’re going to run out of crude oil storage, land-based storage in the United States, especially in the mid-continent and Texas,” Gary Cohn said.

“On Wednesday, the Energy Information Administration reported that inventories of U.S. commercial crude rose by 4.5 million barrels, pushing stockpiles to the highest level on record,” CNBC reported.

“If the industry runs out of storage, front-month contracts for oil could plummet, (…) Forward prices could stay relatively stable, but the headline may read, ‘We’ve got $30 oil in the United States,” Cohn said.

Cohn also added that it’s hard to raise interest rates with deflationary oil prices.

“As the price of oil plunged during the fourth quarter of 2014 and then stabilized in early 2015, inventory began to tighten as prices found a floor from their freefall.  Goldman Sachs oil analysts Damien Courvalin, Jeffrey Currie, Anamaria Pieshacon, Raquel Ohana and Caroline Lu attributed the inventory tightening to weather and mid-east political turmoil,” ValueWalk reported recently.

So how low can oil prices go? Gary Shilling, a US consultant, suggested prices could drop as low as $10 per barrel. “Of course, quite how low prices can actually fall partly depends on which producer you’re speaking to. While developing economies such as Venezuela have high costs, meaning anything under $125 per barrel is a bit of a stretch, many super-efficient producers in the US and the Persian Gulf could keep going, even if prices drop below $20 – for some, that figure’s as low as $10”, City AM reported.

The plummeting oil prices are being pushed even lower by three major factors according to Shilling.

1. Energy-efficient technology.
2. Oil production is forecast to rise.
3. OPEC does not want to give up on its market share.

Brent Crude Oil – Spot Price (Courtesy of StockCharts)

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