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Bullish Goldman Sends Oil Soaring
By Javier Blas and Chris Flood
Financial Times
Friday, June 5th, 2009
Goldman Sachs unexpectedly turned bullish on crude oil on Thursday, helping to drive prices towards $70 a barrel, the highest level in more than seven months.
Wall Street's largest commodities dealer dropped its bearish trading stance and forecast that prices would reach $85 a barrel by the end of the year.
Its change of tone caught the market by surprise, helping Nymex July West Texas Intermediate rally by $3.42 to $69.57 a barrel.
"For better or for worse, a switch in the Goldman price forecast rarely does not have a price influence," said Olivier Jakob of Petromatrix, the oil consultancy.
Goldman had previously said it expected oil to reach $65 by December and as recently as April 28 it forecast that prices could drop to $45 within three months because of plentiful inventories and weak demand.
Goldman said it was now "omitting" the previously expected pullback in prices and recommended clients to take losses, after its previous recommendation to bet on lower prices.
Goldman's influence on oil markets surged after it predicted correctly in March 2005 that prices could suffer a "super-spike" to $105 a barrel. This was at a time when crude was trading at $55 a barrel and its call was well above the consensus.
Since then, some of its forecasts, such as last summer's call for oil to rise to $200 a barrel, have proved wide of the mark.
Then the bank changed tack dramatically as oil prices fell in the second half of last year.
This year, it forecast that prices would average $30 during the first quarter.
Nauman Barakat, vice-president at Macquarie, said: "Goldman's reports have lost a lot of their credibility as a result of being so wrong. "
Jeffrey Currie, Goldman's head of commodities research, explained that the surge in prices was likely to be only the "first stage" in a rally this year and next as economic activity recovered."In all, we expect the rally we have just observed to be followed by three more stages, creating a four-stage rally in oil prices in 2009 and 2010," said Mr Currie. He forecast WTI would reach $95 a barrel by the end of next year.
Most of the recent rally was explained by improved credit markets, he said, which have depressed oil prices artificially by raising financing costs for crude inventories.
Goldman joins other banks, such as Barclays Capital, which has maintained a bullish stance since the beginning of the year, in predicting higher oil prices.
But some banks, including Deutsche Bank, Société Générale, BNP Paribas and Commerzbank warn that oil prices could drop because of weak demand and high stocks. Eugen Weinberg of Commerzbank said on Thursday that a price correction to between $50 and $55 was likely as optimism about an imminent rise in oil demand was overdone.
SOURCE: http://www.ft.com/cms/s/0/3aa8b9c4-5131-11de-84c3-00144feabdc0.html
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Oil
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