Oil could plunge as low as $20 a barrel amid a glut of production around the world, Goldman Sachs analysts said Friday in a new report.
That's a level not seen in more than a decade.
"Although oil prices have revisited the lows of last winter, this time both financial and fundamental metrics are much weaker," Goldman said in the report. "Forward demand expectations are lower as the emerging market economic outlook continues to deteriorate."
To be sure, Goldman is not projecting a drop to $20 — a worst-case scenario, it would be fleeting if it's reached. Goldman's official projection for 2016 WTI prices is $45, down from a previous forecast of $57. Goldman's 2017 forecast stayed at $60.
Still, the suggestion that oil could fall to $20 in a doomsday scenario jolted the energy markets as investors come to grips with the depth of the commodity's price decline.
Following the report's publication, Brent crude fell 2% on Friday morning to $47.76 at 8 a.m., while West Texas Intermediate (WTI) crude fell 2% to $44.83.
Oil prices have dropped in half over the last 12 months as the market adjusts to a global surplus and an economic slowdown in China. The emergence of new sources of oil from the U.S., where producers are tapping shale reserves, has fueled the collapse.
Market observers have been waiting to see whether the Organization of Petroleum Exporting Countries will lower production or whether other countries with high oil output will lower production to preserve pricing.
Drillers in the U.S. have been facing hardships for months, with many toppling into insolvency.
"While it is still uncertain about where, when and how the full supply adjustment will take place, we can say with far greater confidence that oil supply growth in North America will likely slow down if not reverse given recent drilling and investment patterns," Goldman said.
But the analysts said that the U.S. shale boom has generated a "backlog of drilled but uncompleted shale wells," a so-called "fracklog" that puts downward pressure on profit margins.