Oil bull Goldman cuts 2007 US crude forecast by $3
Thu Dec 21, 2006 10:29pm ET
SINGAPORE, Dec 22 (Reuters) - Goldman Sachs (GS.N: Quote, Profile , Research), the most bullish investment bank on oil prices earlier this year, has cut its forecast for U.S. crude in 2007 by $3 to $72.50 a barrel to reflect higher inventories, but still sees hit oil hitting $75.
Prices for U.S. benchmark crude West Texas Intermediate have dropped from $78 a barrel in July to around $62 now on swollen inventories and mild weather in top consumer the United States.
"We maintain our view that WTI prices will reach $75 a barrel by next year. But we now believe that it will take longer to reach and are modestly reducing our annual 2007 WTI price forecast," the company said in a report.
Goldman's forecast topped a Reuters poll in July this year, when oil prices hit record highs, but was pushed into the number two spot by Barclays Capital (BARC.L: Quote, Profile , Research) in August.
The new forecast by Goldman, one of the world's top two energy traders, is still at the high end of the consensus that sees an average near $64 next year [O/POLL].
Prices have been propped up above $60 after OPEC agreed to cut output by 500,000 barrels per day (bpd) from February, to add to a 1.2 million bpd cut from November, stemming a slide that came as excess supplies met worries over slower U.S. growth.
"As long as economic growth does not slow more than expected and weather reverts to normal, we believe that the market will remain in deficit during 2007," the bank said.
Goldman has long stood at or near the top of long-term forecasts, saying that the rapidly rising cost of investment in new production facilities, coupled with growing risks and uncertainties, means oil companies want higher long-term prices to justify the mega-projects needed to meet demand.
It said in the report that 2006 marked a turning point to see the oil market in deficit for the first time since 2003.
"This shift to a deficit market occurred during the fourth quarter as the sharp decline in oil prices proved to be an important stimulus of demand growth," the report said.
"This rebound in demand growth against limited supply growth created the largest October/November U.S. inventory draw on record and will likely completely erase the year-on-year overhang by the end of 2007."
U.S. data on Wednesday showed that U.S. commercial crude and refined product stocks combined were 400,000 barrels lower than the same time a year ago, a sharp fall from a huge 76 million barrels year-on-year surplus at the end of September.
The Goldman report, led by its head of commodities research Jeffrey Currie, said its forecast suggested more stable prices next year that would reduce the drag on demand, which it saw as growing 1.5 million bpd against a supply rise of 1.3 million bpd.
Currie's division is separate from Goldman's equities team, which spooked markets in March last year by saying that prices had entered a "super-spike" phase and could see 1970s-style surges as high as $105 a barrel.
