Oil prices could soon fall below $40 a barrel if investors don't get a clear catalyst that prompts them to start buying the commodity, Goldman Sachs said on Tuesday.
The investment bank believes oil prices will not rally until traders see at least one of two things: further intervention from OPEC or a consistent drop in both U.S. crude oil stockpiles and the number of rigs operating in American fields.
"A failure for these shifts to materialize soon could push prices below $40/bbl as the market tests OPEC's and shale's reaction functions," Goldman analysts wrote in a research note. "Importantly, we wouldn't expect such a move to be volatile, as it is not driven by storage concerns like last year ... but the ongoing search for a new equilibrium."
The bank last week revised its three-month price target on U.S. crude to $47.50 a barrel, down from an earlier forecast of $55 a barrel. On Tuesday, U.S. West Texas Intermediate crude was trading at about $44, up from a recent low near $42.
"We continue to believe that there is another opportunity for OPEC to increase the cuts, but that this should be done in a 'shock and awe' manner, with little public announcement," Goldman said.