Goldman finds more reasons to be cheerful

Goldman Sachs’ energy analysts are finding a lot of reasons to be cheerful about oil prices lately. Remember the IEA’s relatively bullish report oil demand last week, where it revised demand forecasts upwards by 500,000 barrels per day in 2009 and 2010? This was partly due to signs that destocking of crude oil and products, particularly in Asia but also in the US, was stimulating demand for fresh supplies.

However the IEA was cautious, noting that there was a lack of data from China, particularly around inventories, complicated the outlook.

Goldman Sachs however, is (unsurprisingly) much more bullish on the subject of destocking of existing inventories in a note published today.  Even the small upturn in the ISM manufacturing inventory index is good, they write, despite the measure remaining in negative territory (emphasis ours):

However, the modest improvement in this index as well as other inventory measures reflects an initial slowdown in destocking. It is important to emphasize that even a slowdown in destocking would raise the need for more shipments. We continue to believe that a further expected slowdown in destocking will lead to a strong rebound in trucking activity and distillate demand in the coming months, as was the case during prior recessions associated with a deep inventory cycle (see Exhibit 4).

Meanwhile, in a note last week, they complained that improvements in ISM and in GDP data were apparently being ignored by oil markets, but found another reason to be cheerful: US unemployment has little effect on gasoline demand: personal consumption expenditure, or PCE, is far more important. In fact, they said, unemployment hardly matters at all:

Even better, while the labour market might be moribund, Goldman predicts PCE will increase:

Goldman Sachs, of course, are continuing to forecast that oil will hit $85 by the end of the year. So, high fives all around then. Unless of course you subscribe to the view that prices above $80 might threaten world economic growth, that is.

Related links:

Are high oil prices hurting the world economy already? (FT Energy Source, 01/06/09)
Goldman’s renewed bullishness (FT Energy Source, 18/06/09)
The not-so-bullish case for energy prices (FT Alphaville, 20/08/09)

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