Goldman Sachs: Oil Headed to $99 as Recovery Boosts Prices

Tuesday, 04 May 2010 10:49 AM

By Dan Weil

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Goldman Sachs analysts expect oil prices to rise more than 17 percent during the next year to $99 a barrel, as the global economic recovery pushes commodity prices higher.

In a report obtained by The Pragmatic Capitalist website, Goldman analysts wrote that the breakout of energy and industrials metals prices to two-year highs isn’t over.

“We expect the supply-demand balance to continue to tighten in 2010, as the global economic recovery continues to strengthen demand, draw inventories and draw OPEC spare capacity back into the market.”

As a result, oil will make its way to $99, the analysts say. Oil recently traded at $84.27.

To be sure, the forecast is no sure thing, they acknowledge, because the economy may falter.

“While we continue to expect the supply-demand balance to tighten, significant downside risk remains should the market’s concerns regarding a slowdown in economic growth be realized.”

But a long-term rally is the most likely outcome, Goldman argues.

“As we move further into 2010 and even 2011, we think the market’s focus will increasingly turn from the downside risk from demand to the upside risk from supply (shortages).”

Some experts say gasoline demand during the summer driving season will provide a major boost for oil, as consumers feel wealthy enough to hit the roads again.

"We are going to see more demand coming in spring and summer and that is going to push prices higher," Peter McGuire, managing director of Commodity Warrants Australia, told Reuters.

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