The recent uptick in oil prices is yet to persuade investors that current levels will be sustainable, analysts at Goldman Sachs said Monday.
Oil prices have skyrocketed almost 50 percent since the middle of last year but investors were said to be unsure over a number of factors seen propelling the rally. U.S. producer discipline, healthy global demand and supply disruptions were all viewed with a sense of caution among investors, according to the investment bank.
“Most importantly, investors remain unconvinced U.S. producer discipline will hold,” Goldman analysts said in a research note.
“That supply growth needs to be constrained voluntarily, even in the face of a more constructive demand outlook still leaves investors more focused on other metals and mining, where there is greater confidence in China policy-driven supply constraints,” it added.
Oil prices rose around 2 percent on Monday, paring some steep losses sustained over the past trading week. Brent crude traded at around $63.83 on Monday morning, up 1.6 percent, while U.S. crude was trading at $60.35, up 1.9 percent.
Russia and Saudi Arabia are currently leading a joint OPEC and non-OPEC effort to try to reduce a global supply overhang and prop up prices. The deal between OPEC and its allied producers — which started to withhold output in January 2017 — is scheduled to last throughout the calendar year.
Meanwhile, Goldman said it “continued to have an above-consensus outlook for global oil demand.”
Late last year, Goldman lifted its Brent price forecast for 2018 to $62 a barrel and its WTI projection to $57.50 a barrel. The revisions were up from $58 a barrel and $55 a barrel respectively.
The price of oil collapsed from near $120 a barrel in June 2014 due to weak demand, a strong dollar and booming U.S. shale production. OPEC’s reluctance to cut output was also seen as a key reason behind the fall. But, the oil cartel soon moved to curb production — along with other oil-producing nations — in late 2016.
