Goldman Sachs slashes 2009 oil price forecast

Energy research team which once predicted $200 oil now announces $45 estimate.
Goldman Sachs slashes 2009 oil price forecast
By Jonathan Leff
Fri 12 Dec 2008 01:12 PM

Goldman Sachs' energy equity research team, which predicted earlier this year that crude oil could spike as high as $200 a barrel, slashed its forecast for 2009 on Friday, by $30, to just $45, as demand deteriorates.

The team led by Arjun Murti, who in 2005 made waves by calling crude's ascent to $100, also said markets had entered the "bottoming phase" of the current cycle and that it expected prices to hit a trough in the first quarter.

"While global oil demand is very weak and the duration of demand weakness is unclear at this time, we believe oil supply will collapse if prices remain below $40 a barrel for an extended period of time (6-12 months or longer) suggesting we are likely to have entered the bottoming phase of the cycle," the analysts wrote in a report dated Dec. 11.

Meanwhile, OPEC should agree a more "severe" reduction in output at its meeting next week in Algeria to prop up sagging prices, OPEC President Chakib Khelil said in remarks published on Thursday.

The decision of the gathering in the western town of Oran should be sufficient to ensure the removal of surplus oil stockpiles, something that could take up to a year to achieve, he was quoted as saying by the official APS news agency.

"The Oran meeting should (decide) a more severe cut (in production) to establish a balance between supply and demand," Khelil, who is also Algerian Energy and Mines Minister, was quoted as saying.

The agency's report made no mention of a figure.

Since early September, the Organisation of the Petroleum Exporting Countries has already agreed to reduce supply by a total of two million barrels per day (bpd).

OPEC oil ministers are scheduled to meet in Oran on Dec. 17 amid expectations they will authorise a large cut in supplies to prevent further falls in oil prices.

Khelil noted approvingly that Saudi Arabia planned to reduce supplies to its customers in January.

Trade sources said on Wednesday the kingdom had told some of its biggest customers they will get significantly less crude in January, in effect pre-empting the outcome of the OPEC meeting.

One source said the cut from Saudi Arabia would be enough to take the kingdom's output below its implied OPEC target of 8.47 million barrels per day (bpd).

Khelil added that excess oil stocks should be eliminated, although this could take time.

"It's necessary that the stocks surplus is removed from the market," the official APS news agency quoted him as saying.

"That will take time, which could go up to three months, six months or even a year. That will depend on OPEC's decision."

APS said Khelil noted the "problem" of surplus petroleum stocks, notably in the United States and the European Union, which constituted four days of world consumption. (Reuters)

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