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Greenspan

Forecasting Oil Prices

Goldman Sachs gets worried about energy:

Goldman Sachs sees oil above $60 for five years: By Kevin Morriso: Goldman Sachs, one of the biggest financial traders in the commodities sector, expects US benchmark oil prices to remain above $60 a barrel for the rest of the decade.... [P]rices are not high enough to stimulate oil companies to invest more of their swelling cash reserves in new energy infrastructure... oil markets [have] entered a "super-spike" period that could see prices surge as high as $105 a barrel.... The latest estimate is now more than double the bank's long-term oil price forecast of two years ago. The series of increases since are a sign of a structural change in the oil market due to the lack of spare capacity in oil production and refining of petroleum products. With the revision, Goldman's forecast is now higher than that of its peers....

Jeffrey Currie, managing director of global investment research at Goldman Sachs, said the rise in long-dated oil prices reflected a significant increase in the industry's cost structure. The oil industry is moving into a phase of large-scale investment in new fields and refineries as the surge in demand has reduced companies' ability to absorb supply shocks. Mr Currie said the rise in demand for new investment in the oil sector came at a time when production costs were already rising because of limited access to oil reserves, a shortage of labour and insufficient equipment such as drilling rigs. More than half the world's oil reserves are in Saudi Arabia, Iran, Iraq, Kuwait and the United Arab Emirates, which are mostly off-limits to foreign oil companies. Oil companies are uncertain whether to continue to base long-term project planning on a price of $20-$30 a barrel, according to Mr Currie...

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