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Goldman Forecasts Oil to Reach $150-$200 a Barrel

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Goldman foresees a continue rise in oil prices due to continuing capacity constraints and continued strong demand from emerging economies. From Bloomberg:

Crude oil prices may rise to between $150 and $200 a barrel within two years because of a lack of adequate supply growth, Goldman Sachs Group Inc. analysts led by Arjun N. Murti said in a report….

“The possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty,” the Goldman analysts wrote in the report dated May 5….

“There are supply constraints with many producers, especially from non-OPEC struggling to find new reserves and China and Middle East demand keeps growing,” said Victor Shum, senior principal at energy consultant Purvin & Gertz Inc. in Singapore. “The fundamentals are prompting investors to get into oil in a big way and all that points to higher prices.”

Spare production capacity of the Organization of Petroleum Exporting Countries is low and the producer group’s exports may fall because of “lackluster” supply growth and rising domestic consumption in member countries, the Goldman analysts said.

“Non-OPEC supply is struggling to grow, with notable declines being seen in Mexico and Russia showing signs of rolling over following an extended period of rapid growth,” said the analysts from Goldman, the world’s biggest securities firm by market value….

“The core of our super-spike view has been that a lack of adequate supply growth coupled with price-insulated non-OECD demand growth” is leading to higher prices, the analysts said. That could result in a “sharp correction in oil demand,” the Goldman analysts said….

There’s a fundamental misperception that so-called speculators are driving prices to unjustified levels, the Goldman analysts said. “Unfortunately, we do not think the energy crisis will be solved by finding and punishing the big bad speculator.”

Commodity investors, the Goldman analysts wrote, are “helping to solve the energy crisis” by speeding up the process to for oil companies to spend more on energy projects and at the same time encourage efficiency.

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5 comments

  1. doc holiday

    This story is such crap, filed with feces, but at least Yves calls it right by calling attention to the lies: ““helping to solve the energy crisis”.

    This link below to calculated risk is about a month old (april 24) and it represents the total lack of understanding as to how to predict oil prices or model economics; obviously S&P is a worthless data distortion conduit!

    http://calculatedrisk.blogspot.com/2008/04/s-oil-at-91-year-end-50.html

    Re: The American economy is in a recession, which is projected to be short and mild, while oil will likely trade at $91 a barrel by the end of the year, though the range of that forecast is plus or minus $50, Standard & Poor’s said Thursday.

    Goldman pumps it up long whole S&P plays the other end — in the name of pure speculation and volatility, as these mafia crooks that conspire in collusion with The Bush Coup play games with every commodity, stock, bond, derivative, mortgage contract — and then want you to bail out illegal aliens that were given keys to The American Dream…….. this is Rome burning and as usual, no one gets it!

  2. Anonymous

    The strikes in Nigeria and the UK took about 300,000 barrels per day out of the market supply for May. This is on top of worldwide production declines in March and April. That means prices go up.

    We will probably see a consolidation in June, because we have some extra supply coming on then.

    I hope you got hedged during the price drop, Yves.

    Moe Gamble

  3. Steve

    “Unfortunately, we do not think the energy crisis will be solved by finding and punishing the big bad speculator.”

    This could be tested — by forcing liquidation-only settlement of oil and related futures.

    At least we’d know. :-)

  4. juan

    The article presents a (sloppy) supply/demand argument, as though this relation is price determinant even though there has been no free market in crude oil for close to a century when taking account of the 1928 Achnacarry and Red Line agreements at the international level or, earlier still, the Texas Railroad Commission’s role.

    The heart of the present pricing system happens to be the futures markets which, in contrast to Goldman’s claim, one might imagine to be open to financial pressures, even self-fulfilling, story providing, momentum. (But then, as one of the InterContinental Exchange’s launch partners and no slouch in the commodity trading arena, GS is no doubt quite aware)

    An instructive and concise (3 page) description of oil price regimes and their change can be found in Section 2 of the attached from an Oxford Institute for Energy Studies, March 2007, paper:
    http://www.oxfordenergy.org/pdfs/WPM31.pdf

    Steve, on somewhat the same line, it would, I believe, be interesting to see what might transpire if the index funds were not able to circumvent position limits but required to reduce to, and remain within limits. I’ve a sense commodity prices would, well, decline but then there’s really no reason to expect disconnected from real economy reality government to do this.

  5. Yves Smith

    Juan,

    That is VERY helpful, thanks!

    One of the problems that those of us with a securities background have is not being able to sort out signal from noise in the commodities arena. It’s pretty clear that speculation is having a price impact, but how much is the key question.

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