Singapore: Crude oil may rise to between $150 and 200 (Rs6,105-8,140) a barrel within two years as growth in supply fails to keep pace with increased demand from developing nations,Goldman Sachs Group Inc. analysts led by Arjun N. Murti said in a report.
New York-based Murti first wrote of a “super spike” in March 2005, when he said oil prices could range between $50 and 105 a barrel through 2009. The price of crude traded in New York averaged $56.71 in 2005, $66.23 in 2006 and $72.36 in 2007. Oil rose to an intraday record $120.93 on Tuesday on speculation demand will rise during the peak US summer driving season.
“The possibility of $150-200 per barrel seems increasingly likely over the next six-24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty,” analysts wrote in the report dated 5 May.
A report on Monday showed US service industries expanded in April, signalling higher energy use. The Institute for Supply Management said its index of non-manufacturing businesses, which make up almost 90% of the economy, grew for the first time since December. China is increasing refining capacity and boosting imports to meet rising demand for the Olympic Games.
US petrol demand typically climbs in the summer when Americans take to the highways for vacations. Peak consumption period lasts from the Memorial Day weekend in late May to Labour Day in early September. Monthly fuel sales were the highest during August in five of the last six years, according to data from the department of energy.
China, the world’s fastest growing major economy, has more than doubled oil use since New York crude oil dropped to this decade’s low of $16.70 a barrel on 19 November 2001. Record prices have failed to stem rising consumption in developing nations, with demand led by China, India and West Asia.
Price forecasts for spot US benchmark West Texas Intermediate crude oil for 2008 to 2011 were revised higher by Goldman. The 2008 price estimate was raised to $108 a barrel from $96, the 2009 forecast to $110 from $105, and 2010 to 2011 estimates are projected at $120 from $110, the analysts said, citing slowing supply in Mexico and Russia, and low spare production capacity in the Organization of Petroleum Exporting Countries, or Opec.
Oil has also rallied amid a dispute between the US and Iran regarding the Persian Gulf oil producer’s plan to develop nuclear energy.
In Nigeria, Africa’s biggest oil exporter, militants have attacked oil installations and abducted workers since the beginning of 2006, forcing Royal Dutch Shell Plc. to halt output.
In Venezuela, production has slumped to about 2.34 million barrels a day from almost 3 million barrels a day in 2002, according to Bloomberg’s estimates, before President Hugo Chavez fired almost 20,000 workers who had closed the company in an attempt to overthrow the government.
Iraq’s oil production has yet to reach levels attained before the US-led invasion of 2003 as the country struggles with sectarian fighting and attacks on its energy infrastructure.
Mexico’s production has fallen below 3 million barrels a day since October as Petroleos Mexicanos, the state-owned oil company, failed to compensate for a 30% drop at Cantarell, its largest field, which accounts for 40% of output.
“There are supply constraints with many producers, especially from non-Opec struggling to find new reserves and China and Middle East demand keeps growing,” said Victor Shum, senior principal at energy consultant Purvin and Gertz Inc. in Singapore.
Spare production capacity of Opec is low and the group’s exports may fall because of “lacklustre” supply growth and rising domestic consumption in member countries, the Goldman analysts said.
“Non-Opec supply is struggling to grow, with notable declines being seen in Mexico and Russia showing signs of rolling over following an extended period of rapid growth,” said the analysts.
Prices are also poised to gain as major oil-exporting countries restrict foreign investments, limit supply growth, while demand from developing countries, or “non-OECD” (Organisation for Economic Co-operation and Development) nations rises on economic expansion and power shortages, prompting higher demand for gas oil and fuel oil.
Oil for June delivery hit a record $122 a barrel Tuesday in electronic trading on the New York Mercantile Exchange.
On Monday, futures closed 3.1% up at $119.97 a barrel, the highest closing since trading began in 1983.
“The core of our super-spike view has been that a lack of adequate supply growth coupled with price-insulated non-OECD demand growth” is leading to higher prices, the analysts said. That could result in a “sharp correction in oil demand,” they said.
Crude oil’s increase above $100 a barrel was partly because of the dollar’s decline against the euro, which boosted prices as it made commodities cheaper for buyers outside the US and attracted investors as a hedge against inflation.
The US currency has declined 5.4% against the euro so far this year, and 11% last year.
Members of Opec, which supplies about 40% of the world’s oil, have said supplies are adequate and blamed speculators for pushing prices up to records.
The producer group won’t consider raising output before it meets in September as the market is well supplied, Qatari oil minister Abdullah al-Attiyah had said.
There’s a fundamental misperception that so-called speculators are driving prices to unjustified levels, the Goldman analysts said. “Unfortunately, we do not think the energy crisis will be solved by finding and punishing the big bad speculator.”
Commodity investors, the Goldman analysts wrote, are “helping to solve the energy crisis” by speeding up the process for oil companies to spend more on energy projects and at the same time encourage efficiency.