Painted old oil pumps in a scrap yard in Bahrain. Oil prices are destined to remain low all year, Goldman Sachs says.

Surplus storage space and oversupply of capital will keep United States oil prices at less than US$50 a barrel for at least the rest of this year, one of the world’s most-respected commodities analysts says.

Goldman Sachs’ global head of commodities research Jeffrey Currie told a Sydney conference on Thursday that the explosion in shale oil technology and infrastructure in the US had driven down production costs compared with those of expensive deep-water exploration and production, while allowing the US to “dislocate” itself from the rest of the world.

At the same time, tanker capacity built up to meet import demands from the US – which was no longer needed – would absorb excess production, while capital continued to flood into shale despite the shelving of higher-cost projects, Currie said. This was partly because of the very short lead times between investment and oil output.

The resulting build-up in supply would keep the price in the “low US$40s for the next six to nine months”, he said, warning that it “could carry on for the next 12 to 18 months”.

US crude oil was trading slightly higher at US$51.62 a barrel in early Asian trade, but has fallen more than 50 per cent since mid-July. Brent was selling for US$60.55, down about 45 per cent since mid-July.

“We have too much storage capacity built in places like China and the United States, and too many oil tankers globally, because nobody anticipated that the US would dramatically cut imports because of the shale revolution,” Currie said.

Rather than oversupply simply driving down oil prices, current pricing also reflected the return of oil exploration and development from the sea to the land and the removal of the US from global demand dynamics, he said.

“What ultimately brought the market down was recognition that shale was the dominant technology,” he said.

“This recognition occurred in late 2013 early 2014, when a company named Pioneer Resources was out exploring the parameters of Permian Basin and realised that the acreage was twice the size of what was initially thought.”

Access to shale, reflecting not just reserves but also the speed with which oil deposits can be tapped and piped to refineries, had “overwhelmed what the market needs”, he said.

“This is like mining. There’s no such thing as a dry well – you just go out and you get it.”

Once this new pricing dynamic became apparent in the middle of last year, the message became “any type of technology that was more expensive than shale, forget it”, he said.

 – AFR

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