Goldman Sachs said Thursday it expects this week's oil rally to fade and reiterated its call that crude prices will remain lower for longer.
"We continue to view the oil market as oversupplied and with low prices required to achieve the sufficient rebalancing in 2016," Goldman analysts wrote.
U.S. crude has jumped 9 percent since Friday, when the U.S. Labor Department reported the United States added far fewer jobs than expected in September. The disappointing data increased investors' expectations that the Federal Reserve would postpone its first interest rate hike in nine years until 2016.
Goldman said the surge was likely driven by positioning and technicals rather than any change in fundamentals. The firm notes that oil's rally has coincided with a bounce in assets exposed to emerging markets, which typically experience outflows when rates rise.
The MSCI Emerging Markets Index is up more than 7 percent since Friday.
While the Fed's decision to leave rates near zero is a short-term boon to emerging markets, it is ultimately bearish because it suggests central bankers believe economic activity remains weak in both the U.S. and the developing world, Goldman noted. That raises the risk that oil demand remains skewed to the downside.
In a widely cited research note issued last month, Goldman said crude prices could fall as low as $20 if a drop-off in production takes place too gradually.
Saudi Arabia continues to rule out the prospect of reducing OPEC output in order to prop up prices, leaving the United States as the swing producer. But U.S. production has remained stubbornly high as American drillers have secured discounts from vendors, raised capital on debt and equity markets, and turned to more economic methods of plumbing for crude.
On Friday, oilfield services firm Baker Hughes reported the biggest weekly drop in its U.S. oil rig count. But Goldman said the current pace of declines only implies U.S. production will fall by 250,000 barrels per day in the second half of 2015 and remain sequentially flat in 2016.
At the same time, crude inventory increases in the United States, Europe, Singapore and Japan point to stockpile buildups above the seasonal norm, the firm said.
Goldman further points out that rig counts are rising overseas and that estimates for OPEC's September production put it at August's highs.