Goldman Sachs: No Surprise if Oil Drops into the Teens

Jeff Currie, head of commodities research at Goldman Sachs, sees prices between $20 and $40 per barrel.

Oil prices may well drop a lot lower than current rates, but that's not necessarily a doomsday scenario, a Goldman Sachs Group Inc. analyst says.

Speaking on Bloomberg Television this week, Jeff Currie, head of commodities research at Goldman Sachs, remarked that "I wouldn't be surprised if this market goes into the teens."

He went on to say that given the operational and financial stresses characterizing the market, the volatility in prices will be between $20 and $40 per barrel.

Currie noted that oil storage capacity has been used up in many places, which means "prices have to spike below cash costs because you have to shut in production almost immediately."

The analyst also said that "The most striking feature of this market, relative to past cycles, is the lack of a supply response" and current surplus is probably more extreme than the industry downturn of 1998 to 1999.

Currie's remarks come in the wake of reports that about 360 million barrels of crude and refined products will be put into storage over the next six months, a surplus equivalent to the output of Nigeria.

However, Robert Dudley, chief executive officer for BP, echoed tentative predictions made by Currie when he told delegates at the IP Week conference in London that in the second half of this year "every tank and swimming pool in the world is going to fill and fundamentals are going to kick in.

"The market will start balancing in the second half of this year."

The wild card in all of this remains certain members of the Organization of the Petroleum Exporting Countries, with Iran recently stating that it will oppose any bid to stabilize the oil market due to its conflict with Saudi Arabia.