Wednesday, November 10, 2010

Goldman Sachs: Oil Will Be "Substantially Higher" by 2012

Crude oil prices will be “substantially higher” by 2012 as the global stockpile surplus shrinks and excess production capacity drops, according to Goldman Sachs Group Inc., the most profitable bank in Wall Street history. Global economic growth will drive oil demand and reduce inventories, which are still “exceptionally high” in developed countries including the U.S., the world’s biggest user of crude, Goldman said in a report dated yesterday. Spare capacity held by the Organization of Petroleum Exporting Countries will decline as the 12-member group, which pumps 40 percent of the world’s oil, boosts supply to meet demand, the bank said.

“Despite the recent rally, we believe that forward price levels offer good hedging opportunities,” Goldman analysts, led by Allison Nathan in New York, said in the report. “We continue to expect improving fundamentals will provide additional support to prices.” Oil climbed to the highest in two years yesterday, and is up 7 percent this month, on speculation the Federal Reserve’s stimulus program will weaken the dollar, bolstering the investment appeal of commodities. U.S. crude inventories plunged 7.4 million barrels last week, the biggest drop since September 2008, according to an American Petroleum Institute report yesterday.

The Fed said Nov. 3 it will buy an additional $600 billion of Treasuries through June to spur the economy. Investors should have an “overweight allocation” on commodities because this policy, along with the global recovery, is positive for prices, according to Goldman.......Read the entire article.


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