Three years after the investment bank invited ridicule by postulating a "super-spike" that would send oil over $100 a barrel for the first time, the Goldman Sachs analyst Arjun Murti warned that high prices would last even longer and go even higher than previously thought.
In London trading yesterday, Brent crude moved above $120 for the first time, while light sweet crude traded in New York set another intra-day record over $122, before settling at $121.84.
Mr Murti predicted that, although Western countries were beginning to discuss the need to reduce energy consumption, there was still no sign of the excess production capacity needed to cool the market. "The possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months," Mr Murti told clients, "though predicting the ultimate peak in oil prices, as well as the remaining duration of the upcycle, remains a major uncertainty... a multi-year decline in global oil demand is needed in order to recreate a spare capacity cushion and bring about potentially lower energy commodity prices."
Goldman says that the factors leading the oil price higher remain firmly in place, particularly a lack of supply growth. Countries in the Opec producers' cartel are close to capacity, the growth in Russian production is slowing, and in Mexico it is falling. Meanwhile, demand from emerging markets continues to soar.
Mr Murti added: "We believe there is a fundamental misperception among many in the oil industry, Wall Street, the media, politicians and the general public that so-called 'speculators' are driving up the oil price to supposedly unjustified levels. Unfortunately, we do not think the energy crisis will be solved by finding and punishing the big, bad speculator. In fact, commodity investors are helping to solve the energy crisis by speeding up the process of incentivising higher capital spending on a wide range of energy projects, while at the same time encouraging lower levels of demand by energy users."
