Goldman Sachs Group Inc. sees oil prices swinging between $20 and $40 a barrel while the market speculates over whether the OPEC nations, which control most of the world's oil, are planning on an output cut.

Oil prices will continue to drop, the investment bank said in a research note by a team led by Damien Courvalin, once the market realizes OPEC has no intention of cutting output yet.

"We believe this inflection phase requires oil prices to remain between $40/bbl (financial stress) and $20/bbl (operational stress) until 2H16. This phase will be characterized by a highly volatile and trend-less market with the price lows likely still to be set," according to a Goldman note published by Business Insider.

"Despite the sharp bounce in oil prices that these headlines generated, we do not expect such a cut will occur unless global growth weakens sharply from current levels, which is not our economists' forecast. This view is anchored by our belief that such a cut would be self-defeating given the short-cycle of shale production and the only nascent non-OPEC supply response to OPEC's November 2014 decision to maximize long-term revenues," Goldman said.

Oil fell nearly four percent on Monday as weak economic data from China, the world's largest energy consumer, weighed on prices and an OPEC source played down talk of an emergency meeting to stem the decline, Reuters reported.

China's manufacturing sector contracted at the fastest pace since 2012 in January, adding to worries about demand from the world's second-biggest economy at a time when the market is already weighed down by a large supply overhang.

Brent April crude futures were down $1.12, or 3.1 percent, at $34.87 a barrel at 7.43 a.m. ET. The March Brent contract, which expired on Friday, settled at $34.74 a barrel. U.S. West Texas Intermediate (WTI) was down $1.32, or 3.9 percent, at $32.30 a barrel.

Meanwhile, during the past six weeks, long-term oil futures — for deliveries in five years’ time — have fallen even harder than prices for immediate supplies. That’s a sign to Jeff Currie, Goldman’s head of commodities research, that the latest rout wasn’t driven by fading oil consumption. When demand is weak, that gap — or time-spread — would widen rather than narrow, he says.

“Recent price declines are not demand driven, but rather driven by structural supply forces,” he told Bloomberg. “Time-spreads in Brent and oil products have strengthened, not weakened, and weakening time-spreads are characteristic of demand-driven price declines.”

So if a demand shock wasn’t the culprit, then what did push prompt crude to its lowest in more than a decade? It’s still comes down to excess supply, according to Currie.

Meanwhile, longer-term prices have slumped for other reasons, most notably producers hedging sales, and some consumers choosing to abandon their own safeguards against higher prices.

The pressure from low prices is already causing “binding constraints on the oil market,” straining producers’ ability to both access capital and finance their daily operations, Goldman says. That will ultimately lead crude markets to a “new equilibrium,” which Goldman has previously forecast will mean the emergence of a new bull market.

“We’re now in the right zip code in terms of prices that are creating the adjustment process,” he said.

Still, the re-balancing process will be “both protracted and arduous,” with prices swinging between $20 and $40 a barrel throughout the first half before order is restored, Currie predicts.

(Newsmax wire services contributed to this report).