You think $78 a barrel for Brent crude oil and $3 a gallon for petrol is high? Wait until the winter and today’s prices will seem like a bargain, warns Goldman Sachs.

Oil prices have risen within a whisker of their all-time highs. On Monday Brent crude oil hit an intra-day high of $78.40 a barrel, just 25 cents below last August’s all-time high of $78.65 a barrel (here the FT’s story). Investors cashed in their profits on Tuesday sending Brent crude oil down to $76.00 a barrel.

Looking ahead, the US investment bank said on Monday in a report that oil prices could hit $90 a barrel by the autumn and $95 in winter unless the Organisation of the Petroleum Exporting Countries increases its output.

Jeffrey Currie, of Goldman Sachs in London, said: "An increase in Saudi Arabian, Kuwaiti and United Arab Emirates production by the end of the summer is critical to avoid prices spiking above $90 a barrel this autumn."

Mr Currie summed up the situation in a sentence: "Global crude oil production is over 1 million b/d lower than last year, while demand is over 1 million b/d higher."

And Goldman Sachs is not the only bank with this view. Deutsche Bank on Monday raised its long-term oil price forecast from $45 to $60 a barrel. For the record, Deutsche’s long-term oil price forecast three years ago was just $21 a barrel.

Adam Sieminski, Deutsche Bank’s chief energy economist, said: "In an environment of a weak US dollar, elevated geopolitical risk, strong world growth and persisting concerns that non-OPEC oil production may be peaking we expect oil prices will continue to trade expensively when measured in real terms and relative to per capita incomes."

Mr Sieminski added: "We are most inclined to believe in an oil world where Opec cohesion around quotas keeps oil above $50 a barrel while the normal forces of supply and demand tend to prevent oil from staying permanently well above $70 a barrel."

July 17th, 2007 in Oil, Opec | Permalink