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Analysts predict oil price plunge: Oversupply could drive Brent Crude to $20, warns Goldman Sachs

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Screen Shot 2015-08-04 at 23.09.34By LAURA CHESTERS FOR THE DAILY MAIL: 11 September 2015

The price of oil could fall as low as $20, Goldman Sachs warned last night.

As fears about China’s growth continued, the Wall Street giant’s stark analysis of the global crude market pummelled prices again yesterday.

The price of Brent Crude fell more than 2 per cent after analysts at Goldman and Commerzbank slashed their forecasts. Oil has more than halved since last summer as supply increased due to the surging production of the US shale industry.

The price fell to a six-and-a-half year low last month to around $42 and is now about $47.7 a barrel, compared with $115 in June 2014.

Goldman reduced its forecast for next year to $49.50 for Brent and warned it did not rule out oil prices falling as low as $20.

Goldman’s analysts said the oil market is ‘even more oversupplied than we had expected’ due to oil cartel OPEC (Organization of the Petroleum Exporting Countries) continuing to produce more, as well as slowing demand. Goldman warned there could be ‘even weaker demand given China’s slowdown’.

Commerzbank also lowered its forecast and said Brent Crude may rise to $55 by the end of the year and rise to $65 the following year.

Commerzbank senior oil analyst Carsten Fritsch told Reuters Global Oil Forum: ‘It will take time to get rid of the oversupply.’

There are also concerns about the oil supply from Iran, once sanctions are lifted. It is preparing to ramp up its exports and sell the oil that it has been storing on ships. Iran’s oil could enter the global market later next year.

Despite the warnings from Goldman and Commerzbank, the Paris-based International Energy Agency took the opposite view. It expected production outside the OPEC nations to fall by 500,000 barrels a day to 57.7m next year as the US shale oil production slows – meaning output next year would witness the steepest fall since 1992.

Jasper Lawler, market analyst at CMC Markets, said: ‘It appears one of two things will flush out the extra supply: a further price drop as Goldman suggests, or a rise in the cost of borrowing for the overleveraged US shale drillers.

‘As such, a rate hike from the Federal Reserve may actually cause oil prices to rise because of bankruptcies in US shale rather than fall because of a higher dollar.’

Separately it emerged Royal Dutch Shell has quit an influential climate change group over its exploration plans for the Arctic.

Shell, which is currently in the process of buying gas specialist BG Group in a £47bn deal, joined The Prince of Wales’s Corporate Leaders Group in 2005 when it began.

Other members included Lloyds Banking Group, Tesco and Unilever. The group is said to have played a role in lobbying for legislation such as the climate change act that commits the UK to reducing its carbon emissions by at least 80 per cent from 1990 levels by 2050.

Shell’s decision to explore for oil in the Arctic this year has been criticised by environmentalists and also US presidential hopeful Hillary Clinton.

It plans to drill two wells initially – as part of its £4.5bn programme – which could take two years as the drilling can only take place during the warmer months when the ice has cleared.

Although Shell is leaving the Prince of Wales’s group it insisted it is committed to reducing carbon.

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