Goldman Sachs: Oil prices will remain down for several upcoming months

According to Goldman Sachs estimates, it is too early to get excited about the seven-week high reached on Monday, as there are several more months of low oil prices ahead.

The investment body noted that a decline in U.S. rig count has been faster than expected, however, reduction is still not enough to change the course of the oil market.

“It remains insufficient in our view to balance the U.S. market in 2016,” they said.

“Prices need to stay low for longer to achieve a sufficient and sustainable slowdown in U.S. production growth.”

Crude oil will trade around $40 a barrel over the next three months, Goldman forecast, although noting there is “modest upside” to that predictionn meaning there’s a risk prices could be higher.

A month ago, the organization argued its bearish outlook might be too pessimistic, but despite this, it did not change its estimates.

For the first half of 2016, its analysts see prices improving to $65 a barrel. Compare that with the current price of oil for May delivery CLK5 - it dropped 70 cents to $51.45 on Tuesday. 

While crude oil prices started its severe decline in June last year, increase in US shale production is considered an aggravating factor. That did not prompt the pullback in U.S. output many had expected. Not yet, anyway: Goldman Sachs analysts predict total oil production and stockpiles in the U.S. could reach a peak within weeks.

“While the build in U.S. crude inventories has been unprecedented, our rig-based modeling of near-term U.S. production points to production nearing a peak. Combined with an expected ramp-up in refinery runs, we expect U.S. crude oil inventories to peak in April,” they said.

Last week data said that commercial crude-oil inventories climbed 4.8 million barrels in the week ended March 27 to 471.4 million, the highest level in around eight decades. At the same time, the U.S. Energy Information Administration data also showed a 36,000 barrel-a-day drop in production to 9.386 million barrels. That could be the first sign of stabilization in the oil market, the Goldman Sachs analysts said.

Meanwhile, the still-too-high rig count, coupled with raised productivity and the return of uncompleted wells, could halt the rebalancing process, according to Goldman.