Oil gains to above $60 even as Goldman Sachs says rally can't last
Crude prices higher ahead of report Wednesday that will reveal U.S. inventory levels
The price of the North American oil benchmark gained another $1.35 to trade at $60 US a barrel on Tuesday despite a report from influential investment bank Goldman Sachs suggesting the rebound in crude prices is "premature" in that there's still far more oil being pumped and stored than the world needs.
New data out of Saudi Arabia Tuesday showed the world's largest oil exporter pumped 10.308 million barrels of oil per day last month. That's down slightly from the previous month, but still close to a record high.
Data on the amount of oil in storage is expected to come out on Wednesday, another thing that's likely to affect the oil price. Leading up to that, traders appear to be betting that the inventories number will show some improvement in the record amount of U.S. crude being stockpiled.
Oil is denominated in U.S. dollars, which sank on Tuesday. And that at least partly explains why, despite several pieces of bad news, oil prices marched higher again, with WTI adding another $1.35 a barrel to change hands at $60.60 in the afternoon. That's up by about 50 per cent since collapsing earlier this year to the $42 level.
Last week, the WTI price breached the psychologically important $60 level for about 48 hours before tumbling back below on Friday.
Will it last?
At least one major market player says the recent run-up in prices is not warranted, and expects prices to fall back again.
"While low prices precipitated the market rebalancing, we view the recent rally as premature with crude oil prices expensive relative to current and forecast fundamentals," Goldman Sachs managing director Damien Courvalin said in a research note early Tuesday
"As a result, we believe that the recent price rally is premature (and) that 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," it added.
The cratering oil price has led to a precipitous decline in the number of oil rigs in operation or looking for more oil to develop, a sign that output will eventually slow. But so far that's not happening as U.S. shale producers have maintained production levels in a desperate attempt to raise cash to stay in operation.
The North American oil market now seems to be in a see-saw pattern where every sign of less future production causes the price to tick higher, which compels oil companies to restart operations.
with files from Reuters News Agency