Crude rally will hit buffers at $55 as ‘wall of supply’ emerges, Goldman Sachs says

Bank's head of commodities sees return of US shale drillers and supply from disrupted Libya and Nigeria fields as putting a cap on rebound in oil markets.

Oil’s rally will stall at US$55 a barrel as US shale drillers get back to work and a “wall of supply” from investments made over the past decade hits the market, Goldman Sachs says.

Global oil markets are set to remain “very oversupplied” in 2017 amid the return of disrupted output in Nigeria and Libya, resilient US shale production and the start of major projects commissioned over the past 10 years, said Goldman’s head of commodities research Jeff Currie.

“We’re still seeing a lot of oil enter this market,” Mr Currie said. “It’s hard for this market to go above $55.”

US oil futures climbed to a three-month high in New York on Wednesday, trading at $49.54 a barrel at 7:09am local time.

“The sweet spot is 2017” for supplies coming from new projects reaching world markets, Mr Currie said.

Shale producers are hedging their output as soon as prices climb to a range of $50 to $55 a barrel, allowing them to continue drilling, he said. The number of rigs targeting crude in the United States has risen for a fifth week to the highest since February, Baker Hughes said.

While investment in new oil supply has been cut, any shortage in the market is “years off”, Mr Currie said. A “bull state”, where output shortfalls push prices above $100 a barrel, could not happen before 2019 or 2020, he said. Oil futures have not traded above $100 since 2014.

Follow The National's Business section on Twitter