As Oil Rises, Goldman Cautions to Beware a Double Dip

May 12:

Global oil prices posted their largest monthly gain in almost six years in April and are up more than 40% since their lows earlier this year.

But is that rally sustainable? Well, Goldman Sachs has joined the list of forecasters predicting a possible double dip in oil prices. In a recent report, analysts estimate the global oil market will be oversupplied by 1.9 million barrels a day in the current quarter, and “therefore view this rally as derailing this rebalancing and setting the stage for sequentially weaker prices.”

Goldman analyst Damien Courvalin and his team refer to it as a “self-defeating rally.” As he writes:

… 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. Calling the timing for prices to sequentially decline is challenging in the short run as we approach a period of seasonally stronger summer demand and China SPR fill. Nonetheless, we expect evidence of this fundamental weakness and expected US producer reaction to gradually materialize in the US weekly rig count, hedging flows, weakening refinery margins and monthly OPEC production and rig count growth.

After slipping Monday, oil prices are rallying today on a weaker dollar with July contracts for Brent, the global oil benchmark, up 76 cents to $66.38 per barrel and light sweet crude for June delivery West Texas Intermediate, the U.S. marker, up 54 cents to $59.27 per barrel.

In the ETF arena, The United States Oil Fund (USO) rose 1% to $20.60 while the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL) climbed 1.37% to $12.54. The PowerShares DB Oil ETF (DBO) rose 0.47%.

Source: http://blogs.barrons.com/focusonfunds/2015/05/12/as-oil-rises-goldman-cautions-to-beware-a-double-dip/?mod=BOLBlog