PrintAccording to Goldman Sacks, the risks for a $95/bbl oil price spike that highlighted in July have been mostly realised. On that backdrop, Goldman said it was raising its end-of-year oil price forecast to $85/bbl from $72/bbl, with significant risks of a spike above $90/bbl.
At the same time, Goldman Sachs said it was also introducing a 2008 average oil price forecast of $85/bbl with an end-of-2008 price target of $95/bbl.
In July, Goldman Sachs argued that a significant increase in Saudi Arabian, Kuwaiti and UAE production by the end of the summer was critical to avoid prices spiking above $90/bbl this autumn, as this summer's rise in oil prices was nothing like last summer's rise. Crude oil production during these summer months was nearly 1.0 million b/d below the level a year ago, while demand was averaging more than 1.0 million b/d higher than the level a year ago.
According to Goldman Sachs, “This sharp imbalance prevented the normal seasonal build in inventories and has even set the stage for a third quarter draw on stocks, which is a rare event typically associated with significant winter price spikes.”
With regard to the recent OPEC announcement that it would increase production by 500 thousand b/d by November 1 of this year, Goldman Sachs said it believes “that this will be too little, too late, baring an outright collapse in oil demand growth, which we view as unlikely despite elevated concerns over economic growth (a warm winter poses greater risk). Despite only modest demand growth this past year, the reality of anaemic oil supply growth, due to disappointing non-OPEC supply increases and OPEC production cuts has pushed the market into a significant deficit, causing inventories to draw at a rapid pace this year, which pushed the oil forward curves back into backwardation (positive carry), creating the first cyclical bull market since 2003.”
Goldman Sachs said it now expects inventories to decline by 1.5 million b/d
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