oil lows still likely

Goldman Sachs says that oil prices are likely to chop in the $40 to $20 range in the first half of the year.

“This phase will be characterized by a highly volatile and trend-less market with the price lows likely still to be set,” they write in a note.

Even an OPEC cut would come too late to spark a rebound in prices but they argue that OPEC won’t move for several reasons.

“Given the likely time necessary to enact such cuts, the continued large builds in U.S. and global inventories and the fast pace at which U.S. Gulf Coast spare storage capacity is filling, it may already be too late for OPEC producers to be able to prevent another large decline in prices,” they said in the report.

One reason OPEC won’t cut is that their strategy has worked. They wanted to push out higher-cost producers like shale and maintain market share.

“And after a 14-month wait, the strategy is finally bearing fruit, with non-OPEC producer guidance pointing to production declines since oil prices fell below $40 a barrel a few weeks ago,” Goldman Sachs said.

Another big reason is Iran, which intends to raise exports by 1.5 million barrels per day.