Could Oil Prices Fall to $20 a Barrel?

Oil prices are plummeting and from the USA and Australia to the Middle East and Russia, producers are starting to panic. Now, analysts from Goldman Sachs have caused quite the stir with the prediction that soon, oil prices may drop to just US$20 a barrel. While the serious price shift would spell big savings for motorists, the profitability of North Sea oilfields would be thrown into turmoil.

Already, the value of the benchmark West Texas Intermediate crude has dropped from last June’s figure of $107 to under $44. How low can it go? The oil experts at Goldman Sachs are predicting a $20 price tag, a figure that hasn’t been seen since 2002.

Supply/demand crushes crude prices

So what’s causing the drop? The US investment bank is blaming it on superfluity, stating “The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016 … the potential for oil prices to fall to such levels, which we estimate near $20/bbl, is becoming greater.” China’s failure to step up as a global economic superpower is also hitting the industry hard.

Thousands of North Sea jobs are currently on the line, with experts predicting that Treasury tax revenues will eventually bear the brunt.

Goldman Sachs hasn’t been shy about making its prediction public however it does admit that it’s a worst case scenario figure. There is some element of truth though as banks have slashed their price expectations for 2015 while high-cost production projects are shutting down across the globe.

In a recent report the Paris based International Energy Agency wrote, “Oil’s price collapse is closing down high-cost production from Eagle Ford in Texas to Russia and the North Sea.” 

The silver lining

While the oil industry may suffer, households are set to benefit from falling crude prices in the form of lower fuel and energy costs.  

Chris Williamson, the chief economist at financial services provider Markit explains, “It would be hugely beneficial to households as lower petrol and fuel costs would leave more money to spend on other nicer things. It would also bring down inflation and keep interest rates lower for longer which would help homeowners with mortgages. But it will be of huge concern to our offshore oil industry.” 

No doubt crude producers will be looking at ways to cut costs in the wake of falling prices. ‘How to Save Cash in Refineries by using Online TOC Analysers’ explore how new technologies are being used to minimise energy consumption chewed up by steam and hot water processing.