Get ready for another oil price dip: Goldman Sachs

oil-drop-dollarsign – CNBC – Tuesday, 12 May 2015

The rally in oil over the last couple of months has derailed a rebalancing of the commodity’s price and will cause it to weaken, Goldman Sachs warned Tuesday. (Tweet This)

“We believe that the recent price rally is premature” the investment bank’s commodities team, led by Damien Courvalin, said in a note published Tuesday morning.

“Prices need to sequentially weaken, to resume the oil market rebalancing as well as help correct the still intact imbalance of too much capital looking for opportunities in the energy space.”

The price of oil collapsed from near-$120 a barrel in June last year to lows of around $45 a barrel in January, although it has since bounced back to around the $60-a-barrel level. Analysts are now contemplating oil’s “new equilibrium,” with a slew of market watchers predicting that prices could climb to around $70 before the end of the year.

However, Goldman Sachs said the price may have gotten ahead of itself and warned that oil was now trading at a premium compared to to its own “still weak fundamentals.”

These weak fundamentals include rising stockpiles of oil, it explained, and production growth is expected next year from low-cost producers such as Saudi Arabia, Iraq and Russia.

Added to this, Courvalin and his team said that the decline in the number of operational rigs in the U.S. wouldn’t be large enough to put production on a “persistent downward trend.” Meanwhile, U.S. producers are expected to ramp up production again if the WTI price settles above $60 a barrel.

Nonetheless, Goldman Sachs accepted that this “sequential decline” might not begin until later in the year.

Continue reading story at CNBC

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