WTI crude up $40 cents to $48.22 today
Goldman Sachs is out with a well-publicized negative note today.
"We continue to view the oil market as oversupplied and with low prices required to achieve the sufficient rebalancing in 2016," they wrote today.
Oil prices are up nearly 30% from the August lows and hit the highest since July 22 yesterday. However the rally was unable to break $50 and the crude sharply reversed to finish lower on the day after a bearish US supply report.
"High frequency stocks continue to point to an oversupplied market despite a gradual decline in US production," Goldman writes, blaming technicals and a short squeeze for gains in the past week. "Further, while a Fed on hold could offer some reprieve to the EM rebalancing, this decision would ultimately be driven by weaker underlying activity, leaving risks to oil demand and our forecast as skewed to the downside. Net, we expect this rally to reverse and reiterate our forecast for lower prices for longer."
They fret that the latest oil gains were driven by a dovish Fed but note that the reason the Fed was dovish is that global growth is weaker and that implies less oil demand.
In addition, they cite 5 reasons to worry about excess supply.
- US rig counts still point to more production than the market can absorb
- The September total inventory build was 7.3 million barrels larger than the seasonal avg
- International rig counts have risen with Argentina and Venezuela at 1-year highs
- September OPEC production estimates suggest they remain near Aug highs
- Libya, Yemen and Iran risks are skewed toward more supply
Update:
Platts is out with a note saying Saudi Arabia pumped 10.226 million barrels per day in September, which is a touch lower than estimates as it scales back production from record levels earlier this year.
Ryan notes that Saudi Arabia's finance minister has ordered a bit of austerity for Q4. The thinking is that could cause them to scale back production but it could also cause them to pump even more in order to fill the coffers.
