Goldman Sachs: Oil Prices Headed Higher In 2008

Posted In: Commodities, Economy, Energy, Global Economy, Investment Banks, Middle East, Natural Resources, OPEC, Oil

According to Reuters, the most active investment bank in the energy markets, Goldman Sachs, released a new forecast today that said U.S. oil prices will head higher in the coming year. The bank also expects the Organization of the Petroleum Exporting Companies (OPEC) to restrict crude oil production levels, even though global demand may rise. Goldman is forecasting U.S. crude oil to cost an average of $95 a barrel in 2008, up $10 from a previous projection. Analysts at the bank suggested that the price could even reach $105 by this time next year. The new price forecast for 2008 is 7% higher than the most bullish projection among 37 analysts recently polled by Reuters. According to the Financial Times (UK) today, Jeffrey Currie, head of commodities research at the investment bank, said continuing industry cost inflation and uncertainty should provide support to prices in 2008 in spite of an expected economic downturn.

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Goldman Sachs also predicted OPEC will not change its stance in restricting oil supplies. The Financial Times said Currie believes that OPEC’s decision to leave production levels unchanged, rather than to raise them as anticipated, suggests the cartel shares the market’s concerns and has moved to pre-empt the anticipated slowdown in oil demand growth. According to the commodities analyst:

Importantly, the OPEC decision is now limiting actual supplies coming to market, while the anticipated weakness in economic and oil demand growth remains as forecast, with current oil market fundamentals showing no signs of significant weakness yet.

Goldman Sachs expects global oil demand to rise by 1.7 million barrels per day (bpd) next year, which is 200,000 bpd less than previously forecast, but still a higher estimate than others, including OPEC.

Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York, told Bloomberg today that, “Goldman has credibility because they were the first to predict that crude would spike to $100. A sharp increase in their forecast catches everyone’s attention.” Arjun Murti, a New York-based Goldman Sachs analyst who covers oil producers and refiners, roiled markets in March 2005 when he reported that oil prices could touch $105 a barrel during a “super spike” because demand was stronger than anticipated.

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