Goldman says oil’s rebalancing remains fragile amid macro headwinds

*The Goldman Sachs logo is displayed on a post above the floor of the New York Stock Exchange, in this September 11, 2013 file photograph. Goldman Sachs Group Inc's quarterly profit fell 2 percent as weak bond-trading volumes hit revenue in the Wall Street bank's biggest business. The fifth-largest U.S. bank by assets reported on October 17, 2013 a third-quarter profit of $1.43 billion, or $2.88 per share. This compared with a profit of $1.46 billion, or $2.85 per share, a year earlier. REUTERS/Lucas Jackson/Files (UNITED STATES - Tags: BUSINESS LOGO)

*The Goldman Sachs logo is displayed on a post above the floor of the New York Stock Exchange. REUTERS/Lucas Jackson/Files.

29 July 2016, Bengalaru — Oil’s recovering fundamentals remain fragile, with many global factors offsetting each other, leaving a firmer U.S. dollar as the main driver of lower prices recently, Goldman Sachs said in a note this week.

The Wall Street bank, which turned bullish on oil earlier this year, said oil prices will remain in a $45 a barrel to $50 a barrel trading range through mid-2017, with near-term risks skewed to the downside due to high inventory levels and the possibility of a stronger dollar.

“Beyond these near-term uncertainties, however, our updated supply-demand balance is little changed and still points to a slow rebalancing of the global oil market over the coming year,” the U.S. bank said in a note dated Wednesday.

Oil prices on Friday were hovering around April lows as slowing economic growth added to concerns about oversupply of crude and refined products [O/R]

Goldman said it viewed a rise in product inventories as a result of too much refining capacity and strong margins, not weak demand. It did not expect rising gasoline stocks to act as a catalyst for further price declines.

“In our view, it would take a global demand slowdown, a sudden sharp halt in China’s crude inventory build or a ramp up in Libya or Nigeria production to take prices back below $35 per barrel, with each able to fully offset the 2H16 deficit of 230,000 barrels per day that we project.”

The bank said global demand growth has been frontloaded to H1 and growth should moderate in the second half due to headwinds in China, India and Japan. It also lowered its forecast for 2017 by 120,000 barrels per day to 1.2 million barrels per day, mainly due to a decline in European demand following Britain’s exit from the EU.

*Apeksha Nair; Editing – Richard Pullin – Reuters

About the Author