Investment banking giant Goldman Sachs (GS), which in April did forecast this week’s major correction in oil prices, said on Friday the price of oil could extend past recent highs by fiscal 2012 as a result of supply tightness.[From Reuters]: “It is important to emphasize that even as oil prices are pulling back from their recent highs, we expect them to return to or surpass the recent highs by next year,” Goldman Sachs’ analysts said in a research note.
“We continue to believe that the oil supply-demand fundamentals will tighten further over the course of this year, and likely reach critically tight levels by early next year should Libyan oil supplies remain off the market,” it said.
Goldman, viewed as one of the most influential firms in commodities business, said that this week’s correction in oil prices, which fell below $100 p/b Thursday, more than 13% from its high on May 2, was started by discouraging economic data releases and U.S. oil inventory data.
“The sell-off yesterday (May 5) has likely removed a large portion of the risk premium that we believe has been embedded in oil prices, which could suggest further downside may be limited from here,” Goldman said, adding “however, we remain wary of potential further downside should economic data releases in coming days continue to disappoint.”
Selling commodities is a controversial reposition given the continued bullish mixture of limited crude oil supplies and robust emerging market demand. Then again, Goldman was one of the first banks to predict $100 oil last decade, in March 2005 when prices were closer to $50 a barrel, which is why its trading calls should be taken seriously.