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Tue 8 Mar 2011 12:45 PM

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Goldman Sachs raises oil forecasts as OPEC buffer shrinks

Benchmark futures in London will average $105 a barrel in second quarter, bank says

Goldman Sachs raises oil forecasts as OPEC buffer shrinks
OIL PRICES: Saudi Arabia and other OPEC countries could shoulder the burden and stop global oil prices from skyrocketing should unrest in Libya continue (Getty Images)

Goldman Sachs Group raised its oil-price forecasts as an increase in production by Saudi Arabia and supply halts in Libya reduce OPEC’s ability to make up for further disruptions.

Benchmark futures in London will average $105 a barrel in the second quarter of the year, up $4.50 from Goldman’s previous estimate, the bank said in a report dated on Monday. It raised its forecast for New York oil by the same amount to $99 a barrel. The Organisation of Petroleum Exporting Countries, whose 12 members pump about 40 percent of the world’s crude, has idle capacity of less than 2 million barrels a day, down from 3 million in December, the bank said.

“The real risk is that the remaining spare capacity cannot accommodate an escalation in disruption,” analysts led by David Greely in New York wrote in the report. “The current developments in Libya have therefore brought forward the drawdown of OPEC spare capacity by about six months.”

Oil has jumped 23 percent on the New York Mercantile Exchange since anti-government protests began Feb. 15 in Libya, cutting exports from OPEC’s ninth biggest producer. The contract for April delivery traded around $104 a barrel on Tuesday. Brent crude on the London-based ICE Futures Europe exchange, which climbed to $119.79 on Feb. 24, the highest since August 2008, traded below $114.

Libya, which holds the largest crude reserves in Africa, pumped 1.59 million barrels a day in January, according to a Bloomberg survey of producers and analysts. The country has lost about 1 million barrels a day of production and Saudi Arabia is “the only country” with enough spare capacity to offset the loss, Goldman said.

Saudi Arabia, the world’s largest crude exporter, is producing more than 9 million barrels a day, or 700,000 barrels above the official figure for January, according to Goldman. While the kingdom has said it is ready to compensate losses from Libya, it probably raised output “significantly” before the turmoil in North Africa began, the bank said.

Goldman reiterated its view that the risk of violence spreading to countries in the Gulf Cooperation Council remains low. The group comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.

“There are a number of economies with similar traits to Libya that could be susceptible to contagion, including Algeria, Syria and, in an extreme case, maybe even Iran,” the bank said. “There is currently a $10-a-barrel contagion risk premium priced in, reflecting the fear that unrest may spread to other oil production countries in the region.”

Demonstrations in Libya were ignited by the January 14 ouster of Tunisia’s president Zine El Abidine Ben Ali and fanned by the fall of Egyptian President Hosni Mubarak on February 11. Disturbances have also spread to Algeria, Bahrain, Iran, Yemen and Oman.

Websites have called for a nationwide “Day of Rage” in Saudi Arabia on March 11 and March 20, according to New York-based Human Rights Watch.

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