Oil to climb on growing demand, reduced spare capacity: Goldman
London (Platts)--7Jul2011/603 am EDT/1003 GMT
Global banking and securities firm Goldman Sachs said Thursday it was
expecting considerable oil price upside in the next 6-12 months as rising
demand fueled by improved global economic growth cut into OPEC spare capacity.
"With world economic growth continuing to drive oil demand growth well
in excess of non-OPEC production growth, the oil market continues to draw on
inventories and OPEC spare capacity in order to balance," Goldman Sachs said
in its Commodity Watch report.
"In our view, it is only a matter of time before inventories and OPEC
spare capacity become effectively exhausted, requiring higher oil prices to
restrain demand, keeping it in line with available supply."
As such, Goldman Sachs has now forecast a WTI crude price of $111.00/b
in three months, $115.00/b in six months and $126.50/b in 12 months, this
compares with $108.00/b, $114.50/b and $126.50/b forecasts from its May 24
Commodity Watch report.
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For Brent crude, Goldman Sachs said its three, six and 12-month
forecasts were now to $117.00/b, $120.00/b and $130.00/b. In its May 24
report Goldman had forecast prices of $115.00/b, $120.00/b and $130.00/b,
"We continue to expect that oil demand growth fueled by moderate
economic growth expectations will be sufficient to draw down crude oil
inventories and OPEC spare capacity by early next year, leading to
considerable oil price upside on a 6- to 12-month horizon," Goldman said.
At 0825 GMT, the front-month August NYMEX crude futures contract was
trading at $97.27/b, while front-month August ICE Brent futures were
Goldman also said the impact of the recent International Energy Agency
agreement to release 60 million barrels of oil onto the market to compensate
for lost production out of Libya would only be short-lived.
"As details of the release have begun to be made available, it is now
clear that only about two-thirds of the release of 60 million barrels will be
through a sale from government-controlled inventories that would otherwise be
unavailable to the market. Further, the impact of the release is likely to be
substantially more muted as time goes on," Goldman said.
"On net, while this oil will moderately increase near-term supply
availability, it does little to alter inventory levels and the trajectory of
crude oil prices over the medium-term." For the products market, Goldman
Sachs has forecast an RBOB gasoline price of $2.89/gal in three months,
$2.95/gal in six months and $3.35/gal in 12 months, down from $2.96/gal,
$3.94/gal and $3.36/gal in their May 24 outlook, while USGC heating oil has
been forecast at $3,12/gal, $3.26/gal and $3.48/gal, compared with the
earlier forecasts of $3.04/gal, $3.24/gal and $3.47/gal.
"Gasoline inventories have recovered from their very low levels in April
and early May while gasoline demand has picked up markedly as we entered the
summer driving season, supported by a substantial decline in retail prices
which have dropped almost $0.40/gal since the peak in early May," Goldman
said, adding that ongoing strong gasoline cracks reflected the weakness in
WTI prices rather than strength in gasoline.
For heating oil, meanwhile, Goldman said that while US distillate stocks
started the year well above last year's levels, inventories have declined
sharply over the course of the year and have so far lacked the typical
seasonal increase over the past weeks.
"This supporting trend is driven primarily by strong export demand from
Latin America and increasingly Europe rather than domestic demand, which
remains well below last year's levels," Goldman said.
"We expect this export demand to continue this summer, likely supported
by diesel-fired electricity generation demand in China and Japan."
--Geoff King, email@example.com