Golman Sachs: oil price super-spike to $105
Golman Sachs says oil price may super-spike to $105
By Finfacts Team
Apr 1, 2005, 12:56
The oil markets are in a ``super-spike'' period that could see 1970's-style price surges as high as $105 a barrel, one of the world’s top investment banks Goldman Sachs has said in a research report.
On The New York Mercantile Exchange, light crude is trading at $55.7 and in London, Brent is trading at $53.48 per barrel.
Goldman's Global Investment Research note also raised its 2005 and 2006 New York Mercantile Exchange (NYMEX) crude price forecasts to $50 and $55 respectively, from $41 and $40.
Goldman Sachs (GS) is one of the biggest trader of energy derivatives, and its Commodities Index is an important gauge of energy and commodities prices.
GS said that limited spare capacity at both upstream and downstream coupled with robust demand in the United States, India and China is underpinning high oil prices.
GS said the oil market environment looks similar to the 1970s, when oil prices rose dramatically in 1979 following the Arab oil supply embargoes and Iran's revolution.
In 1980, the price of light crude hit $39.50 per barrel - the equivalent of $90 today.
GS also said that its super-spike forecast range was conservative, because of the declining US petrol/gasoline spending as a proportion of GDP and consumer spending.
In the 1980-1981 period, gasoline spending in the US corresponded to an average 4.5 percent of GDP, 7.2 percent of consumer expenditures, and 6.2 percent of personal disposable income, GS 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.
GS said that an assumption that gasoline spending would have to reach 1970s levels to destroy demand, would result in its super-spike estimate increasing to $135 per barrel for NYMEX 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…we estimate that US gasoline prices may need to exceed $4 per gallon.''
IEA April Report
The Financial Times says that oil importing countries should implement emergency oil saving policies if supplies fall by as little as 1m-2m barrels a day, the International Energy Agency will warn next month.
The figure is much lower than the official trigger of 7 per cent of global oil supply equivalent to 6m b/d agreed in the treaty that founded the energy watchdog for industrialised countries after the oil crisis of the 1970s. A fall in supply of just 1m-2m b/d would be equivalent to the disruptions during the 2003 Iraq war or the 2002 oil industry strike in Venezuela.
A warning to set up “demand restraint policies” in the transport sector, such as driving bans or shorter working weeks, is contained in a study to be published next month during the annual IEA meeting of energy ministers.
It comes as oil is trading at more than $55 a barrel and highlights the agency's concern about the possibility of a supply shock, the economic impact of high oil prices, and the need to focus on conserving energy rather than simply encouraging higher production.
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