Calgary: A glut of crude may keep oil prices low for the next 15 years, according to Goldman Sachs Group Inc.

There’s less than a 50 per cent chance that prices will drop to $20 a barrel, most likely when refineries shut in October or March for maintenance, Jeffrey Currie, head of commodities research at the bank, said in an interview in Lake Louise, Alberta. Goldman’s long-term forecast for crude is at $50 a barrel, he said.

Goldman cut its crude forecasts earlier this month, saying the global surplus of oil is bigger than it previously thought and that failure to reduce production fast enough may require prices to fall near $20 a barrel to clear the glut. Prices may touch that level when stockpiles are filled to capacity, forcing producers in some areas to cut output, Currie said Wednesday.

“When we think of the longer term oil price, yes we put it at $50 a barrel,” he said. “However the risks are to the downside given what’s happening in the other commodity markets and the macro markets more broadly.”

Lower iron ore, copper and steel prices as well as weaker currencies in commodity-producing countries have reduced costs for oil companies, according to Currie. The world is shifting from an “investment phase” of a 30-year commodity cycle to an “exploitation phase,” with shale fields as an important source of output, he said.

US benchmark West Texas Intermediate crude futures were 1.3 per cent lower at $46.52 a barrel on the New York Mercantile Exchange at 11:24am. London time. Prices are down about 13 per cent this year and have plunged more than 50 per cent over the past 12 months.

Fed Rates

The US Federal Reserve may “leave a lot of negative uncertainty in emerging markets,” potentially affecting oil demand, if it doesn’t raise rates at its meeting this week, Currie said.

The Federal Open Market Committee will release its policy statement along with quarterly economic projections Thursday in Washington. It will weigh the impact on the US outlook from slowing growth overseas and falling stock prices, as committee members determine whether to end almost seven years of near-zero interest rates. Economists are close to evenly divided on the outcome, with 59 of 113 surveyed by Bloomberg expecting the Fed to stand pat.

While a “dovish hike” in interest rates would reduce uncertainty in emerging markets, any adjustment would be a “relatively small story” for crude, Currie said.