Goldman Sachs increases crude oil price forecast
MF Global analysis sees holes in the bullish view
By Tom Stundza -- Purchasing, 6/4/2009 10:32:00 AM
Goldman Sachs Group has lifted its forecast for light sweet crude oil prices to a $75/barrel average in the second half, up from $52 forecast earlier. The Goldman Sachs analysis now expects oil prices to hit $85 (from $65) by the end of the year and to push to $95 by 2010. Through May, West Texas Intermediate averaged $46.52/barrel, according to Purchasingdata.com
“The recent rally in WTI prices is likely to be but the first stage in the oil price rally that we expect will accompany a recovery in economic activity,” Goldman Sachs reports to clients. “In all, we expect the rally we have just observed to be followed by three more stages, creating a four-stage rally in oil prices in 2009 and 2010.”
However, this bullish forecast isn’t assured in a demand-depressed crude oil marketplace where price movements probably will be widely erratic, says analyst William Copp of MFGlobal.com in a note to clients. He points out that traded oil prices drop whenever the dollar weakens and the Energy Information Administration or the International Energy Agency publish rather bearish supply/demand numbers.
Case in point: WTI prices dropped $2/barrel yesterday during a relatively light trading day after EIA data revealed that stockpiled U.S. crude was up by a sharp 2.9 million barrels in the week ended May 30. That’s a substantially weaker report than the 1.4 million barrel/day drawdown that had been expected.
Copp says this report “underlined the difficulty that OPEC (Organization of Petroleum Exporting Countries) is facing in trimming the large inventory overhang. The increase was credited, in part, to a jump in imports by about 860,000 barrels, taking overall stock levels to some 9.6 million barrels/day.”
May oil supply from the OPEC-11 rose to 25.91 million barrels/day from a revised 25.62 million in April, according to a Reuters survey. The May number was 1.07 million barrels/day higher than the implied output target of 24.84 million barrels. Uposhot: Compliance was estimated at 75% versus 81% in April.
Gasoline inventories posted a modest decline off 200,000 barrels vs. estimates calling for an increase, while distillate stocks rose 1.6 million barrels versus the 1 million barrels expected. “Neither product component carried enough of a surprise to be much of a factor (in spot or futures pricing) yesterday,” says Copp, “and it was largely the crude number that was the dominant figure.”
Not helping the bulls either, he says, is the fact that there is little evidence that demand has turned the corner. “Gasoline demand was off 0.4% on a four-week moving average basis, while both distillate and total product demand continue to struggle, off by 8.8% and 7.7%, respectively. Rounding out the numbers, refinery usage was up 1.2% points at 86.3% percent of capacity versus expectations calling for a rise of 0.5%.”
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So it aggrivates me that, just when the economy is trying to bottom out and regain upward momentum, here comes Goldman with their psychological warfare on low oil prices so that they can watch their holding soar in value. Once again proof that energy prices, oil in particular, is dominated by psychological factors and not the fundametals of supply and demand.
With oil's obvious affect on the global economy when it has wild price fluctuations, doesn't it make sense to limit oil investments to those that actually take physical delivery of the product? Maybe invetstors might actually pump money in to stocks again so that companies actually have more capital to grow and invest in value added activities. Oil just has to far reaching of an effect on economic well being to be subjected to the psychological whims of investors and traders who have nothing to gain but quick profit.
