As per Goldman Sachs, the U.S. oil prices will plunge to US$40 per barrel soon. This conclusion came a time when the crude oil inventories began increasing as a result of the gains caused due to the falling crude oil prices. For the third time this year, the prices of global crude oil had risen because of supply side issues budding from the Middle East and also sluggish performance of the refineries during the situation of high margins. The firm clearly expressed that the current trend of falling crude prices in a way resembled a similar situation that prevailed during the global economic meltdown period in 2008.
Even though the company has predicted that that the economic situation will improve in 2015, a consistently weakening economic activity will have a drastic impact on the demand-growth situation. The market for quite some time has been witnessing a significant rise in oil supply because of greater use of Fracking or hydraulic fracturing, processes that are used extensively by the producers of shale oil in the United States. However, the steep costs incurred during the Fracking process basically denoted that the operation of rigs was not feasible and ended up being unprofitable because of declining prices. This led to several oil producers in the U.S. to stop operating almost 90 rigs per week.
Goldman Sachs also expressed that it expects low demand from the OECD economies so that these economies would switch to LNG. The bank also expects that the demand for LNG would go beyond iron ore and prove to be the world’s second largest commodity following oil. Goldman Sachs finally stated that Brent prices will also come under significant economic pressure.