Oil has been surging this week but Goldman Sachs is warning the rally will not last, as no fundamentals changed.
The U.S. crude oil futures broke above $50 per barrel on Thursday for the first time since July:
Jeffrey Currie, head of commodities research at Goldman Sachs, meanwhile, wrote that although "this rally has occurred alongside a broader re-risking across assets after last week's U.S. non-farm payrolls release, the oil move has been larger, exacerbated by still large short positioning and the break of key technical levels."
This play has occurred before, pointing to the parabolic jump in oil prices in late August that took place after the massive equity market selloff.
The problem is that there has been no shift in fundamentals. Despite the start of a decline in U.S. production, the market is still oversupplied. Although the shale revolution was the thing that provided the impetus for the grinding drop in oil prices seen over the past year, Currie claims that the oil surplus is now being sustained by production outside the U.S.
The U.S. dollar index has
given back ground over the past two weeks amid growing confidence that
the Federal Reserve will not hike interest rates in
2015.
But in Currie's opinion, lingering inaction from the central bank isn't necessarily salutary for crude prices; in fact, he suggests that it would cause the opposite effect.
"A Fed on hold could offer some
reprieve to the emerging market rebalancing," but this option would
ultimately be driven by weaker underlying activity, leaving risks to oil
demand and our forecast lopsided to the downside, he wrote.
"Net, we expect this rally to reverse and reiterate our forecast for lower prices for longer."
Goldman's commodities team a month ago predicted that the price of crude could fall as low as $20 per barrel and stay at relatively pressured levels for up to a decade and a half.
