Goldman Sachs Sticks to Call for $39 Oil as Rally to Reverse

The rally in oil will dissipate and prices will decline to $39 a barrel in New York, Goldman Sachs Group Inc. said, maintaining an earlier forecast.

Continued equity issuance by oil explorers in the past week will “exacerbate” a global oversupply as a necessary pullback in U.S. production is delayed, Jeff Currie, the bank’s New York-based head of commodities research, said in an interview on Bloomberg Television. Oil’s rebound over the past month was driven by demand from retail investors, Currie said.

“We think this thing is overdone,” Currie said of the recovery during an interview on “Surveillance” with Tom Keene. “Our target on oil is it can go all the way down to $39 a barrel” for West Texas Intermediate, and $42 for Brent.

The highest U.S. crude production in three decades helped build a global glut that caused an oil-price slump of almost 50 percent last year. While crude has rebounded about 15 percent from a near six-year low reached last month, U.S. companies have not yet idled enough drilling rigs to halt the nation’s production growth, according to Goldman.

U.S. oil production rose to 9.28 million barrels a day in the week to Feb. 13, the highest in weekly Energy Information Administration data collected since 1983. The nation’s crude oil stockpiles expanded by 7.7 million barrels in the same period to

425.6 million, a sixth weekly advance to the highest in weekly EIA data going back to 1982.

The unabated rise in U.S. production is deepening the global supply glut and will reverse the price rebound, analysts from UBS Group AG, Bank of America Corp. and Commerzbank AG also said this week.

Options Traders

Goldman last month cut its six- and 12-month forecasts for Brent to $43 and $70 a barrel respectively, from $85 and $90, amid increasing inventories. It also reduced its projections for U.S. benchmark WTI to $39 a barrel and $65, according to a Jan. 11 report.

Options traders are betting that oil’s rebound from a six-year low won’t last. Contracts that protect against a drop in prices by giving the owner the right to sell U.S. crude futures are the most expensive relative to those offering the right to buy in data going back to 2010, according to data compiled by Bloomberg.

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