Brent crude is going back to $75 after likely OPEC supply cut: Goldman

The commodities chief at Goldman Sachs says the oil market sell-off is likely nearing its end and forecasts Brent crude will soon return to $75 a barrel.

That suggests the worst losses for crude futures are likely in the rear view mirror.

“Our base case is we’ll bounce around here,” Currie told CNBC’s “Squawk on the Street” on Wednesday. “I like to think about it like a pinball machine, but eventually the momentum is going to be to the upside.”

Currie says concerns about deteriorating demand for oil are “overblown.” More pressing, he says, is the surge in output from the United States and Libya, and the Trump administration’s decision to allow eight countries to keep importing Iranian crude despite U.S. sanctions on the Islamic Republic.

Those factors added about 1 million barrels per day to the market, he said, but they still does not justify a more than 20 percent pullback in oil prices.

Currie believes the rapid decline over the last few days was driven by momentum trading, a strategy in which traders buy or sell assets as the price moves decisively higher or lower. That momentum selling largely accounts for U.S. crude prices falling below $60 a barrel and toward $55, according to Currie.

At that point, another quirk of the market kicked in. When oil fell to about $55, it triggered selling by swap dealers, who had sold options to oil producers giving them the right to sell the commodity at that price level.

Historically, this environment can last for three to four weeks, Currie says. However, rising volatility in oil markets will discourage momentum traders, who like low volatility markets that are either trending higher or lower.