Oil market is 'unconvinced' by the recent price rally, Goldman Sachs says

• Oil prices have skyrocketed almost 50 percent since the middle of last year.
• But Goldman Sachs says investors are unsure about a number of factors that propelled the rally.
• "Most importantly, investors remain unconvinced U.S. producer discipline will hold," Goldman says.

Workers position a section of pipe during drilling operations at a gas well outside Corpus Christi. Patterson-UTI Energy is drilling the well for Decker Operating of Houston.

Eddie Seal | Bloomberg | Getty Images

The recent uptick in oil prices is yet to convince investors that current levels will be sustainable, analysts at Goldman Sachs said Monday.

Oil prices have skyrocketed almost 50 percent since the middle of last year, but investors were said to be unsure over a number of factors seen propelling the rally. U.S. producer discipline, healthy global demand and supply disruptions were all viewed with a sense of caution among investors, according to the investment bank.

"Most importantly, investors remain unconvinced U.S. producer discipline will hold," Goldman analysts said in a research note.

"That supply growth needs to be constrained voluntarily, even in the face of a more constructive demand outlook [that] still leaves investors more focused on other metals and mining, where there is greater confidence in China policy-driven supply constraints," it added.

'Above-consensus view'

Oil prices rose Monday, paring some steep losses sustained over the past trading week. Brent crude traded at around $63.71 on Monday morning, up nearly 1 percent, while U.S. WTI crude was at $60.28, up 1 percent.

OPEC said Monday it expects demand for oil to grow faster than it originally expected in 2018, but the organization also sees supplies from beyond the producer group surging this year, driven by rising U.S. output.

Russia and Saudi Arabia are leading a joint OPEC and non-OPEC effort to try to reduce a global supply overhang and prop up prices. The deal between OPEC and its allied producers — which started to withhold output in January 2017 — is scheduled to last throughout the calendar year.

Goldman said it "continued to have an above-consensus outlook for global oil demand."

Late last year, Goldman lifted its Brent price forecast for 2018 to $62 a barrel and its WTI projection to $57.50 a barrel. The revisions were up from $58 a barrel and $55 a barrel respectively.

The price of oil collapsed from near $120 a barrel in June 2014 due to weak demand, a strong dollar and booming U.S. shale production. OPEC's reluctance to cut output was also seen as a key reason behind the fall. But, the oil cartel soon moved to curb production — along with other oil-producing nations — in late 2016.