Goldman Sachs: This oil rally is not going to last

Oil has been surging this week but Goldman Sachs is calling for gains to be short-lived.

“While this rally has occurred alongside a broader re-risking across assets after last week’s US non-farm payrolls release, the oil move has been larger, exacerbated by still large short positioning and the break of key technical levels,”Jeffrey Currie, head of commodities research at Goldman Sachs wrote.

Currie writes that we’ve seen this play before, pointing to the parabolic surge in oil prices in late August that occurred following the huge equity market sell-off.

The problem, according to Goldman, is that the fundamentals have not changed: In spite of the start of a roll-over in production in the US, the market remains oversupplied.

While the shale revolution was what provided the impetus for the plunge in oil prices seen over the past year, Currie claims the oil glut is now being sustained by production outside the US.

Currie claims continued inaction from the Federal Reserve isn’t necessarily a boon for crude prices; he contends it would have the opposite effect. “Net, we expect this rally to reverse and reiterate our forecast for lower prices for longer.”

A month ago, Goldman’s commodities team indicated crude could fall as low as $20 per barrel and stay at relatively depressed levels for up to 15 years.

Bloomberg


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