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2008-05-06 18:16:43
Goldman Sachs: Possibility of $150-$200 Per Barrel of Oil "Increasingly Likely" Over Next 6-24 Months
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A group of Goldman Sachs analysts, led by Arjun Murti, released a report today saying that there was a good chance that oil would touch $150-$200 per barrel in the next "6-24" months.
Oil futures rocketed higher on the report, touching an all-time higher of almost $123 per barrel before settling at $121.84 on the day. This is a near doubling of oil prices in the last 12 months, as a barrel of oil was trading at $62 a barrel just a year ago.
This isn't the first time that Goldman Sachs has made a big call on the price of oil. In April of 2005, Goldman Sachs said that there would be a "super spike" in oil prices, driven by high demand, that would take oil as high as $105 per barrel. At the time, this seemed laughable to seem, but their prediction has come to fruition.
The problem of course is that such a prediction can become a self-fulfilling prophecy. Aside from demand for oil, speculation in the price of oil futures is one of the biggest contributing factors to the skyrocketing price of oil. If a firm with as much stature as Goldman Sachs comes out and says that it is "likely" that oil futures will hit $200, then speculators will buy and drive the prices higher. With oil futures in uncharted territory, speculators have almost free rein to drive the price higher, especially if they are armed with reports such as these from Goldman Sachs.
The reasons for Goldman Sachs' bullish views on oil? Global demand outstripping supply is the biggest reason, led by China's surging economy. A growing economy means more reliance on oil, and this is a large contributing factor to the spike in oil. Also, Mexico and Russia are unable to supply as much oil as previously due to increased usage in their own countries and "lackluster" supply growth.
Goldman Sachs goes on to say that surging oil prices will ultimately result in worldwide demand falling off sharply.
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