U.S. producers battling OPEC for market share may increase output further from the highest rate in more than three decades as costs decline almost as fast as oil prices, according to Goldman Sachs Group Inc.

The slump in benchmark U.S. crude futures, which are down more than 40% this year, is driving producers to move drill rigs to lower-cost fields, the bank said in an e-mailed report Dec. 15. While there’s evidence of some rebalancing starting to occur in the market, that isn’t sufficient, it said.

A decision last month by the OPEC to maintain its output target prompted speculation that the group is willing to let crude slide to a level that would slow U.S. production. Smaller member-nations including Venezuela, which have called for action to support prices, may play a role in rebalancing the market, Goldman said.

“Costs are falling nearly as fast as the price, which means oil producers can spend less to get the same or potentially even more in terms of production,” the bank said. “While reductions in capex are coming faster than expected, it is unlikely to translate into less supply” it said, adding that drill-rig rates have dropped as much as 20%.

ConocoPhillips Co. (NYSE: COP), the third-largest U.S. energy producer, cut its capital expenditure by about 20% for next year amid the price slump driven by horizontal drilling and hydraulic fracturing that have opened up shale formations.

Rig Count

West Texas Intermediate for January delivery fell $2.14 to $57.81 a barrel on the New York Mercantile Exchange on Dec. 12, the lowest close since May 2009. It was at $58.24 in electronic trading at 11 a.m. London time Dec. 15.

While data from Baker Hughes Inc. (NYSE: BHI) shows U.S. producers idled the most rigs in two years last week, this count was almost entirely for vertical machines, not the horizontal drillers used for shale output, according to Goldman.

OPEC will stand by its decision not to cut output even if oil drops to as low as $40 a barrel and will wait at least three months before considering an emergency meeting, United Arab Emirates Energy Minister Suhail Al-Mazrouei said yesterday at a conference in Dubai. The 12-member group maintained its collective target of 30 million barrels a day at a Nov. 27 meeting in Vienna.

‘New Normal’

WTI will average $70 to $75 a barrel next year and Brent, the European benchmark grade, will trade at $80 to $85 in London, Goldman reiterated on Nov. 27.

Crude price forecasts that are based on outdated cost data create a further downside risk because those expenses are shifting as fast as oil prices, according to the bank. The market view that the market can rebound “not only suggests that oil prices can go lower for longer, but also that the new normal is far lower than we thought just one month ago,” it said Dec. 15.

In the three geologic formations that account for 88% of U.S. shale oil output—North Dakota’s Bakken and the Eagle Ford and Permian in Texas—explorers can drill new wells profitably in some areas even if crude falls to $25 a barrel, according to ITG Investment Research Inc.