Goldman Sachs has slashed its 2015 oil price forecasts, making it the most bearish among major financial institutions, following a near 25 percent fall in crude prices over the past five months.
The U.S. investment bank said rising output will outstrip demand—with its forecast weighing further on benchmark Brent crude prices—as forecasters generally pare back estimates for oil due to global growth, a strengthening dollar and ample supplies.
Goldman analysts said in a report released late on Sunday that it expects U.S. benchmark West Texas Intermediate crude to fall to $75 a barrel and Brent to $85 a barrel in the first quarter of 2015, both down $15 a barrel from its previous forecast.
WTI could fall as low as $70 in the second quarter and Brent as low as $80, when oversupply would be the most pronounced, before returning to first-quarter levels, Goldman said.
Goldman's projections contrast with those of Standard Chartered Bank's oil analyst Paul Horsnell, known for having called the market's long rally a decade ago, who is sticking with a more bullish bias.
Last week, Horsnell and his team cut their first quarter Brent forecast to $98, but pared back their forecast for calendar 2015 by just $5 to $105 a barrel.
Brent crude futures dipped 0.2 percent on Monday to below $86 a barrel, extending their decline despite a continued easing of worries over the global economic recovery, said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research & Consulting.
"I personally think prices have room for declines though not as steep as Goldman," Akuta said.
NYMEX crude for December delivery was up 4 cents at $80.05 a barrel by 0104 GMT, after settling down $1.08 on Friday following a spike up on Thursday.
Goldman said production outside OPEC countries was expected to accelerate, led by Brazil and drilling in the Gulf of Mexico with the end of extensive deep-water maintenance following the 2010 Macondo disaster.
Non OPEC-production outside the U.S. Lower 48 states is forecast to increase by 412,000 barrels per day this year, 573,000 bpd in 2015 and 505,000 bpd in 2016.
Output from Brazil's Santos basin is forecast to start to pick up, increasing Brazilian output by 206,000 bpd in 2014 and 325,000 bpd next year. Gulf of Mexico production is expected to increase by 155,000 bpd in 2015.
Among OPEC countries, Iraqi production is seen increasing by 200,000 bpd and Libya's output stabilizing at about 700,000 bpd, compared with recent production of about 900,000 bpd.
Iranian production and exports are unlikely to see further growth because Goldman analysts do not expect a resolution to the country's nuclear dispute with the West by the Nov. 24 deadline, meaning sanctions on Tehran will not be lifted.
On the demand side, growth has only averaged 630,000 barrels per day year-on-year so far, less than half Goldman's initial forecast for 2014, the report said.
Global economic growth is forecast by Goldman analysts to increase to 3.5 percent next year but there is a "risk that the historical relationship between global GDP growth and oil demand has weakened," the report said.
In the United States, rising shale production is having ever more far reaching consequences for global energy flows and eroding OPEC's pricing power, Goldman said.
"U.S. shale is the marginal swing barrel in the new order," Goldman said, adding that a slowdown in production will happen when WTI falls to $75 per barrel.
"U.S. shale oil production has continued to surprise to the upside with U.S. domestic oil prices incentivizing strong investment," the report said.
Once prices fall and U.S. production slows, Goldman expects cutbacks among OPEC producers including Saudi Arabia, which has been content to let prices fall in the hope of forcing U.S. shale producers out of the market.
"Any near-term OPEC production cut will be modest until there is sufficient evidence of a slow-down in U.S. shale oil production growth," the report said.