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Oil rallies past $127 on increased price forecast
Goldman Sachs raises oil-price view to $141; retail gasoline soars to record
By
Myra P. Saefong &
Polya Lesova, MarketWatch
SAN FRANCISCO (MarketWatch) -- Crude-oil futures rallied toward $128 a barrel Friday to mark their highest level as
Goldman Sachs raised its oil forecast for the second half of the year by 32%.
Crude oil for June delivery climbed $2.73, or 2.2%, to $126.85 a barrel on the New York Mercantile Exchange. The contract, which expires at the end of trading on May 20, closed out last week at $125.96.
June crude traded as high as $127.82 Friday in electronic trading.
"Goldman Sachs issued another bullish report, this time from their commodity department after last week's super-spike projection from the energy equity analysts," said Linda Rafield, a senior oil analyst at Platts.
Goldman Sachs raised its forecast Friday for the average price of West Texas Intermediate oil in the second half of 2008 to $141 a barrel from $107 a barrel. Long-term oil prices will need to continue to rise to bring trend oil demand growth in line with trend supply growth, which stands at around 1% a year, it said.
And long-dated prices will need to rise on average by 14% above current levels to $148 a barrel, Goldman said.
The report follows Goldman's prediction on May 6 that oil prices were increasingly likely to hit between $150 and $200 a barrel over the next six to 24 months.
See full story.
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We believe that the market is not defying fundamentals but rather experiencing a structural repricing much like it did in 2004, searching for a new equilibrium against an uncertain long-term supply environment," the broker said Friday.
Adding support to oil prices Friday were comments from Saudi Arabia, where President Bush was speaking with Saudi King Abdullah. The White House said Saudi Arabia does not see enough demand from customers to increase oil production, the Associated Press reported.
But Saudi Arabia, the world's largest oil producer, has topped its Organization of the Petroleum Exporting Countries output quotas for six straight months, flying in the face of the cartel's official position that it doesn't need to boost production despite record high oil prices.
Read full story.
Demand strength
Overall, "there is a good bit of speculative fever currently taking hold of the market, pushing prices past the $127 level, but it's just becoming more apparent that the
global demand picture is quickly outstripping the supply realities of the market," said Neal Ryan, manager at Ryan Oil & Gas Partners.
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A 4% global demand growth scenario for energy usage is quickly sending the markets higher because the reality is we're only seeing a 1 percent annual growth in production figures on a global scale," he said in emailed comments.
The oil market hasn't had a lot of time to get used to triple-digit prices, let alone the idea that $100 a barrel just might be the new price floor and the concept that cheap oil is a thing of the past.
See Commodities Corner.
Rafield pointed out that underlying
fundamentals remain supportive and
supply from members outside of OPEC "continues to disappoint."
"Nigeria disruptions appear endless," she said. "Middle distillate balances are tight, supporting heating oil and gas oil prices."
So dips in the oil prices "continued to be viewed as buying opportunities and the path of least resistance is still on the upside," Rafield said.