Goldman Raises Oil Price Forecast

Goldman Raises Oil Price Forecast

Goldman Sachs commodities analysts raised their forecast for the average price of West Texas crude in the second half of 2008 by $34 to $141 a barrel.

“The current oil market is experiencing a structural repricing much like it did in 2004-2005. After remaining stable for more than two years, the longdated oil price (five-year forward) is once again driving the oil market,” Goldman said.

“As the rise in long-dated prices drags spot prices to ever higher levels, speculators, a weakening U.S. dollar, and ‘risk premiums’ of all kinds have once again been looked to in order to explain a market that seemingly defies fundamentals.”

Goldman says it will take some time for the oil market to reach supply and demand equilibrium, but oil prices cannot rise forever. “Eventually a price will be reached which incentivizes significant conservation, new technologies and political solutions which will eventually cap the price rises and allow large scale investment. However, until that point is reached, the risks remain skewed to the upside.”

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