The risk that oil could fall as low as USD 20 a barrel is rising, with a persistent surplus requiring prices to remain lower for longer to rebalance the market, Goldman Sachs said, cutting its forecasts again.

"While we are increasingly convinced that the market needs to see lower oil prices for longer to achieve a production cut, the source of this production decline and its forcing mechanism is growing more uncertain, raising the possibility that we may ultimately clear at a sharply lower price with cash costs around USD 20 a barrel Brent prices," Goldman said in a note Friday.

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The sources of stress: an abundance of oil coupled with a scarcity of storage space. The bank estimates the industry added around 240 million barrels of petroleum to storage tanks from January to August.

It projects available identified storage capacity outside China at around 375 million barrels and expects an around 240 million barrel inventory build outside China between September of this year and the end of 2016.

"In the event that storage fills faster than we forecast or capacity is lower than we model, the potential downside to our oil price forecast from hitting storage capacity is significant," Goldman said.

But it noted USD 20 a barrel isn't its base case, even though risks that oil will fall that low continue to rise, especially as the bank expects only moderate production declines through the end of the year.

Goldman cut its one-month, three-month, six-month and 12-month WTI oil price forecasts to USD 38, USD 42, USD 40 and USD 45 a barrel. That's down from USD 45, USD 49, USD 54 and USD 60 previously.

It cut its average price forecast for 2016 to USD 45 a barrel from USD 57.

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Brent for October delivery was trading around USD 48.73 a barrel on Friday, while US crude was trading around USD 45.63 a barrel. That follows a wild ride for oil prices, with crude rallying from a low of USD 37.75 touched on August 24, with daily swings of more than 5 percent in either direction.

"The oil market is even more oversupplied than we had expected," Goldman said.

"We now forecast this surplus to persist in 2016 on further OPEC production growth, resilient non-OPEC supply and slowing demand growth, with risks skewed to even weaker demand given China's slowdown and its negative emerging market feedback loop."