Goldman Sachs raises its oil price forecasts
13 January 2012
, by Andrea Hotter - London (MarketWatch) http://www.marketwatch.com/story/goldman-sachs-raises-its-oil-price-forecasts-2012-01-13Goldman Sachs Group Inc. raised its oil price forecasts Friday as it shrugged off the influence of tensions between Iran and the west and cited more positive near-term economic developments in the U.S. and China and the reduced risk of contagion from Europe
. The U.S. bank increased its forecast for West Texas Intermediate crude by 8%, to $113 a barrel on a three-month basis
, from $104.50 a barrel previously
. It also increased its six-month forecast
to $115 a barrel from $113.50 a barrel
and its 12-month outlook
to $123.50 a barrel from $122.50a barrel
. Similarly it increased its Brent crude forecast by 2% to $120 a barrel on a three-month basis
, from $117.50 a barrel previously
, and maintained its six- and 12-month forecasts
at $120 a barrel
and $127.50 a barrel
Goldman said the crude oil market isn't embedding an "Iran premium" into the price of oil, despite European Union preparations for more sanctions against the country, likely including an embargo on Iranian crude.
The bank said Saudi Arabia is stepping up to fill the supply gap to refiners as they seek alternative sources of oil ahead of the proposed sanctions, and that this is putting pressure on prices and timespreads in the physical market.
But once the details of the EU embargo become known and new supply relationships become established, this downward pricing pressure will dissipate, Goldman said.
"We ultimately expect European refineries to replace the Iranian crude with Saudi barrels, clearing the current surplus, while China absorbs the surplus of Iranian crude, in part to fill its strategic reserves," the bank said.
"Consequently, we could simply see a swap of Saudi oil for Iranian by Europe being largely offset by China filling its strategic reserves with Iranian oil instead of Saudi."
Adding to the potential for higher prices is that as Saudi production rises, the Organization of Petroleum Exporting countries will be operating with a very thin layer of spare capacity, making the market vulnerable to disruptions, particularly in Nigeria.
As brinkmanship between the west and Iran heightens, threats to close the Strait of Hormuz--a critical oil shipping choke point, accounting for roughly 35% of all sea-borne traded crude and flows of 17 million barrels a day
But Goldman said that in reality, the Strait is unlikely to close. "Closing the Strait isn't in anyone's interest, including Iran's," it noted. "
An attempt to close the Strait would be met by a strong military response from the U.S., which would be able to reopen the waterway, and a release of strategic reserves to supply the market in the interim."
The bank said the negative influence on near-term prices from the tensions between Iran and the West is "likely masking the more positive near-term developments from the better-than expected economic numbers in the U.S. and China and the reduced risk of European contagion."
"Consequently, we expect prices to remain well-supported even if tensions with Iran subside, and we see the risk to oil prices increasingly skewed to the upside in 2012."