Oil prices will continue to rise: Goldman
London, December 1, 2011
Goldman Sachs forecast the price of Brent crude oil at $130 a barrel in 2013, saying crude will continue to rise even in a poor economic growth environment.
Making public its 2013 forecast for the first time, the firm also predicted the price of US crude (WTI) at $126 a barrel in 2013, saying the WTI-Brent spread was likely to narrow further as the US Seaway pipeline's capacity rises to 400,000 barrels a day.
Goldman analysts maintained their 12-month "overweight" stance on commodities, as well as their 2012 commodity price forecasts citing their economists' expectation of a global economic slowdown, but not a global recession.
It now expects Brent to end 2012 at $127.5 a barrel, average $130 a barrel in 2013 and end that year higher at $135 a barrel.
"We continue to view the crude oil market as navigating between the currently tight physical oil markets and the threat that the European debt crisis could trigger a global economic recession in the near future, which would lead to a sharp drop in oil demand," analysts said in a note.
However, Goldman analysts said oil demand may drop in 2013 if 2012 sees the outcome of either of two scenarios - a price spike due to tight physical markets or a drop in prices due to an economic recession.
"As long as the risks manifest themselves in economic weakness and not in financial stress that would likely precipitate a global recession, it is unlikely to severely impact commodity markets," Goldman analysts said in a note.
This view from Goldman is in sharp contrast to that of JPMorgan and Morgan Stanley who have limited their exposure to commodities in light of the potential economic crisis.
JPMorgan downgraded commodities to "underweight" last week, saying policy failures in the United States and Europe have darkened the outlook for the next six months. Morgan Stanley advocated selective exposure to commodities as macro-economic concerns threatened demand.
Goldman analysts argued lessons from the financial meltdown of 2008 showed commodity markets traded higher on strong emerging markets until financial stress created a global recession.
Goldman said commodities markets had ended the month up 1 percent, even as the European debt crisis intensified in November. Earlier this week, Morgan Stanley said the growth in these markets would only mitigate the risks and not offset them.
According to Goldman, crude oil prices will have to move sharply higher in 2012 to respond to the tightness in physical markets, before moving lower to factor in the potential damage from the feared global economic downturn.
Brent crude fell 58 cents to $109.94 by 0921 GMT on Thursday, reversing a modest gain in prices earlier, while the loss was limited in US crude prices trading 12 cents lower at $100.24 a barrel by the same time. - Reuters