Oil Rally Fading

Oil Rally FadingOil Rally Fading

Goldman Sachs said 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, CNBC reported.

US crude has jumped 9% since Friday, when the US 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.

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.

At the same time, crude inventory increases in the US, 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.