September 20, 2007
Wall Street bets on higher oil prices
With oil prices trading above $80 a barrel, Wall Street banks have raised their price forecast for the rest of 2007 and 2008. In some cases, the prices updates released this week, as the oil prices hit a fresh all-time high of $82.51 a barrel, are significantly large.
Unclear is for now what would be the economic impact of oil prices above $80 a barrel.
Goldman Sachs led the bulls with a price target for West Texas Intermediate for the end of 2007 of $85 a barrel, up from an earlier forecast of $72 a barrel. The bank also introduced a price target of $85 a barrel for 2008, with a year end forecast of $95 a barrel.
Jeffrey Currie, head of commodities research at Goldman Sachs in London, said that despite only modest demand growth this past year, anemic oil supply growth has pushed the market into a significant deficit. This has created “the first cyclical bull market since 2003 that will likely carry into 2008,” Mr Currie added.
Barclays Capital has raised its price forecast for 2007 to $68.8 a barrel from $66.3 a barrel. The bank, which has been one of the most accurate oil price forecaster in recent years, also raised its 2008 price forecast from an earlier $73.9 a barrel to $77.0 a barrel.
Paul Horsnell, head of commodities research at Barclays Capital in London, said: “The US crude oil market has tightened further.” Barclays Capital sees now oil prices above $82 a barrel on average on the third quarter of next year.
BNP Paribas has raised the 2007 oil forecast just a bit to $67.2 a barrel from an earlier $64.4 a barrel. But the French bank has raised sharply its 2008 target from $65.5 a barrel to $72.5 a barrel. Harry Tchilinguirian, senior oil market analyst at BNP Paribas in London, explained that the “revision is driven by strong global demand growth relative to non-OPEC supply growth, a greater reliance on OPEC barrels, tight spare production capacity and a view that refinery capacity additions will not suffice to alleviate pressure on light sweet crude.”
Credit Suisse, Switzerland’s second-biggest bank, raised its 12-month price forecast for oil to a range between $66 to $72 a barrel, up from $62 to $67 previously. At the time of writing, 14.15 London time, Nymex October West Texas Intermediate is up 17 cents to 82.10 a barrel. There are not any contracts trading below $70 a barrel until October 2012, that is trading at $69.99 a barrel. The most forward contract, the Nymex December 2015 WTI, is at $69.73 a barrel.
