Crude to hit $175, says Goldman Sachs

COMMODITIES SURGE: The price of oil could hit $175 a barrel, Goldman Sachs said. (Getty Images)

Oil prices could hit $175 a barrel in the next few years as commodities witness "explosive rallies" spurred by supply constraints, investment bank Goldman Sachs Group said on Friday.

The bank said in a report that political decisions on money flows, labour and technology were "substantially constraining supply growth" of commodities, reported newswire Bloomberg.

"This will likely support the ongoing structural bull market in commodities until these policy-driven investment constraints are removed and/or demand is adjusted," Goldman Sachs said.

The bank said under investment in refineries, mines and land was contributing to the soaring price of commodities.

Oil prices hit a record $111 on Thursday as the US dollar dropped to a 12-year low against the yen and a record low versus the euro on uncertainty about the long-term impact of the US Federal Reserve's efforts to ease strained credit and money markets.

That was followed on Friday by spot gold touching an historic high above the key psychological level of $1,000 an ounce, as investors rushed into commodities to hedge against inflation and the falling dollar.

Goldman Sachs said $175 crude "represents the price level required to maintain trend economic growth against our anemic supply growth forecasts, assuming growth in the US re-accelerates early next year".

An industry expert last month claimed oil prices could top $300 per barrel within the next five years, describing current highs of $100 a barrel as "cheap".

The International Energy Agency (IEA) warned last week the era of cheap oil had ended.

It said the baseline for oil prices has moved higher and that only a severe world recession could send oil back below $60 a barrel for a sustained period. Oil has climbed from below $20 in early 2002.

Big consumer nations such as the US have called on Opec to raise production in an effort to bring prices down, but members have repeatedly said the market is well supplied and skyrocketing prices are out of their control.

Qatar's oil minister said in remarks aired on Thursday that oil supplies were "very comfortable" and there was enough oil on the market for stocks to build.

But some analysts have questioned whether Opec members really want to see prices drop.

Oil consultancy PFC Energy said in a recent report that the world’s oil-exporting countries had become dependent on high prices in order to fuel domestic economic growth and would be reluctant to let prices drop.

PFC Energy said many Opec members could not afford to sustain their current level of economic activity if prices dropped to what they were just a few years ago.

Oil rockets to all-time high
Speculative traders, geopolitical tensions and flailing US dollar push oil through $110 to new record.

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