Global investment bank Goldman Sachs came out today with a warning against the continuation of betting on the recent oil price rally. From a peak of $120 a barrel in June 2014, the price of oil crashed to $45 a barrel in January, and has since recovered to around $60 a barrel.
Goldman Sachs’ commodities team, headed by Damien Courvalin, released a note on Tuesday morning saying oil’s “still weak fundamentals” make the 33% rebound no longer sustainable. Courvalin said: “We believe that the recent price rally is premature. 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.”
As for the American energy companies’ ability to adapt to the lower oil prices, considered by some analysts as engineered by the OPEC cartel to kill the shale drilling industry, Courvalin commented: “With evidence at hand that U.S. producers responded aggressively to low prices, the burden of proof has shifted to how they will respond to the recent recovery and whether low-cost producers can sustainably deliver higher production. This may, as a result, delay the sequential decline in prices until this fall, especially as we approach a period of seasonally stronger summer demand.”
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On the other side on the trade, most hedge funds and money managers increased their bets on rising oil prices for a seventh consecutive week, to their highest levels on record. InterContinental Exchange (ICE) data released yesterday showed that traders had increased their net long positions in Brent futures by 11,839 contracts to 288,727 in the week up to May 5, the highest level since records began in 2011.