From Reuters
Goldman Sachs: Oil Could Spike to $105
March 31, 2005
10:39:00 AM ET
LONDON (Reuters) - Oil markets have entered a
``super-spike'' period that could see 1970's-style
price surges as high as $105 a barrel, investment
bank Goldman Sachs said in a research report.
Goldman's Global Investment Research note also
raised the bank's 2005 and 2006 New York Mercantile
Exchange crude price forecasts to $50 and $55
respectively, from $41 and $40.
These forecasts sit at the top of a table of
predictions from 25 analysts, consultants and
government bodies surveyed by Reuters.
``We believe oil markets may have entered the early
stages of what we have referred to as a ``super
spike'' period -- a multi-year trading band of oil
prices high enough to meaningfully reduce energy
consumption and recreate a spare capacity cushion
only after which will lower energy prices return,''
Goldman's analysts wrote.
The analysts said resilient demand had led them to
revise their super-spike range to $50-$105 per
barrel from $50-$80 previously, noting strength in
oil demand and economic growth in the
United States
and China especially.
U.S. oil futures on the New York Mercantile Exchange have
averaged $50.03 per barrel so far in 2005.
Goldman Sachs is the biggest trader of energy
derivatives, and its Goldman Sachs Commodities Index
is a widely-watched barometer of energy and
commodities prices.
Goldman pointed out thin spare capacity in the
energy supply chain, and long response times for
bringing on supply additions, as well as robust
demand in the United States and in developing
heavyweights China and India, despite the recent
rapid increase in energy costs.
HARKS BACK TO 1970s
Goldman said the current oil market environment
looked more like that seen in the 1970s -- when oil
prices spiked dramatically following the Arab oil
embargoes on supply to the West and Iran's
revolution.
High energy prices threw the world into recession,
and triggered several years of declining oil demand.
Supply growth continued unabated and bolstered spare
capacity, which in turn stabilized oil markets at
lower prices -- a phase of the market cycle that
Goldman's researchers said had only just ended.
The bank also said its super-spike forecast range
was conservative, noting declining U.S. gasoline
spending as a proportion of GDP and consumer
spending.
During 1980-1981, gasoline spending in the
United States
corresponded to an average 4.5 percent of
GDP, 7.2 percent of consumer expenditures, and 6.2 percent of personal
disposable income, Goldman said.
``Our new $50-$105 per bbl super spike range perhaps
conservatively corresponds to gasoline spending in
the
United States
that reaches 3.6 percent of forecasted
GDP, 5.3 percent of consumer expenditures, and 5.0 percent of personal
disposable income.
Goldman said that were it to assume gasoline
spending needed to reach 1970s levels to destroy
demand, its upside super-spike estimate would be
$135 per barrel for New York crude.
``Perhaps the ultimate answer to high how oil prices
need to go before demand destruction occurs is
derived from knowing when American consumers will
stop buying gas guzzling sport utility vehicles and
instead seek fuel efficient alternatives.
``Based on our analysis of gasoline spending and the
economy noted above, we estimate that U.S. gasoline
prices may need to exceed $4 per gallon.''
© 2005 Reuters
