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Goldman Sachs raises 2009 oil price forecast to $85

05 June 2009 11:09 (UTC +04:00)

Bakuâ€“ APA-Economics. Goldman Sachs Group Inc. raised its forecast for U.S. benchmark oil by 31 percent to $85 a barrel for the end of 2009 and predicted further gains next year as demand recovers and supplies shrink, Bloomberg reported.
The bank set a 12-month price target of $90 a barrel for West Texas Intermediate crude, up from $70, and introduced a forecast of $95 for the end of 2010.
Oil posted its biggest monthly gain in a decade in May, and this month traded above $69 a barrel for the first time since November on speculation a global economic recovery will trigger a rebound in demand. A decline in the value of the dollar has also drawn investors to crude and other commodities as an inflation hedge.
The rally has been driven by the â€œunwinding of pricing dislocations caused by the credit crisis,â€ Goldman said in the report dated June 3. Itâ€™s a â€œprologueâ€ to a price recovery in the second half of the year as the global economy stabilizes and crude inventories decline, the bank said.
Crude oil for July delivery traded at $66.87 a barrel on the New York Mercantile Exchange as of 9:05 a.m. London time. Goldman had expected oil to dip during the middle of this year, then rally in later months.
â€œWith the risk of further pricing dislocations reduced, we are omitting the prior anticipated price pullback from our forecasts and have raised our 3-month ahead price target to $75 a barrel from $52 a barrel,â€ Goldman said.
Easing credit markets have cut financing costs on crude storage, strengthening near-term prices relative to longer-term contracts, or narrowing the so-called contango, according to Goldman. The contango is likely to continue shrinking this year as production cuts by the Organization of Petroleum Exporting Countries reduce crude inventories, the bank said.
â€œThe key to the anticipated recovery in supply-demand fundamentals will be the willingness of OPEC, in particular Saudi Arabia, to keep production reduced and draw inventories back to 10-year average levels,â€ according to the report
The bank recommends buying crude options for the right to buy oil at $85 by June 2010, while selling a contract for the right to buy at $100 a barrel in the same period.
Goldman, the fifth-largest bank in the U.S. by assets, said it expects there to be an energy shortfall by the second half of next year as spare production capacity among OPEC members is unable to meet rising demand as non-OPEC supplies wane.
â€œEven a full return of spare OPEC production will be insufficient to avoid a sharp decline in inventories as non-OPEC production continues to decline amidst rising demand,â€ Goldman said in the report.