Goldman Sees Oil Somewhere Between $150 and $200 a Barrel within Two Years

By Brendan Moore

05.06.2008

Bloomberg is reporting this morning that a team of analysts at Goldman Sachs Group, Inc, led by Arjun N. Murti, is forecasting that the price of crude oil may rise to somewhere between $150 and $200 USD within 24 months as supply is continuing to lag behind demand.

Oil is currently selling at approximately $121 per barrel as I type this. Sales of pickup trucks and SUVs have fallen off a cliff at current gasoline prices and if oil were to increase, say, another 50% in price to approximately $180 per barrel within two years, it would cause considerable mayhem in the auto industry. Forget SUVs and pickups; sales of crossovers and large cars would also experience considerable deterioration in the marketplace.

“The possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty,” the Goldman analysts wrote in the report dated yesterday, May 5.

The short version of the Goldman report is this: Demand from China, India, Middle East, Russia and other developing economies is going to continue increasing, and oil supplies will probably remain static or decrease. Addressing the current popular and political sentiment against oil speculators, the Goldman analysts concluded, “There’s a fundamental misperception that so-called speculators are driving prices to unjustified levels, the research analysts said. “Unfortunately, we do not think the energy crisis will be solved by finding and punishing the big bad speculator.”

Even more worrisome than the spectre of ever-rising oil prices is the potential scenario put forth by the Goldman analysts of a so-called “super-spike” in the oil commodities market that would suddenly drive oil prices upward quickly within a very short time frame. This type of dramatic price correction would really damage consumer confidence overall, and for the auto industry, would put a dagger into new vehicle sales for at least a couple of quarters.

You can read the whole Bloomberg article HERE.

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Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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10 Comments

  1. We could solve this problem if we just tell the environuts to get lost and drill in ANWAR. Then we get all the oil we want.

  2. anonymous, don’t forget the Bakken formation localized in North Dakota, Montana and Saskatchewan who have interesting deposits of oil

  3. Ummmm……..nyet.

    Oil is traded as a worldwide commodity. And if you haven’t noticed the problem is the demand for fuel is outstripping supply. That’s fuel……not oil. The problem is the worldwide capacity to process oil into fuel…..

    Sooooooooo you’d be drilling holes into a wildnerness thousands of mile from anywhere to produce oil that is priced on a worldwide market (so it won’t get much cheaper unless you literally dump it on the market….which you can’t because you have to recover the costs of getting it out of the ground and to a refinery)and then you can’t find enough refinery capacity to process all that oil into the much needed fuel…….so there’s not really that much more fuel available……so it doesn’t get any cheaper. Or at very best you return to square one.

    Or as a species we could collectively pull our heads from our bums and actually find a solution that doesn’t rely on the past….innovation and change is only as scary as you choose to make it.

  4. ANWAR is not the solution to gas prices. Do you think there’s refined gasoline sitting under the ground just waiting for our pickups and SUVs to burn? If Congress said “OK” tomorrow, it would take years to get any oil out of ANWAR. And then it would be, at best, a band aid to a larger systemic problem, which is too much consumption of our current energy sources. A combination of better efficiency and alternative fuels (not corn-based ethanol, either) is the only one that will work to cut down oil prices.

    Either that or a global recession, that is.

  5. A global recession, someone else taught of the same thing on this French blog it’s under the title “Les pétrolières…” (you have to use Babelfish or Google translation to translate from French to English)

    For efficiency and alternative fuels, I taught of these articles from AutoblogGreen and
    Fast Company about Jonathan Goodwin who had probably find a way to get a big vehicule more efficient.

    And for ethanol, we have to keep an eye on cellulosic ethanol who seems to be a more superior compared to “corn-ethanol”, besides Cosaska there the comapnies Iogen and Enerkem. Sweden also made ethanol from wood feedstock(this article date from February 2005, here one from September 2007)

    I guess I digged enough for future topics on Autosavant ^_^;;

  6. Nuclear power which will produce all the electricity we will need which will power our electric cars.

  7. Just to put this into perspective, a cost of $150 a barrel translates into approximately $4.60 a gallon national average for unleaded regular gasoline.

  8. From the Wall Street Journal –

    Oil watchers say most signs point toward a continued increase in prices. Despite talk that speculators have driven up crude prices as a hedge against the slumping dollar, oil has rallied 10% since the first week in April while the dollar has risen about 2% against the euro.

    Even more unusual is that oil has maintained its upward momentum in the face of sharply diminished U.S. demand, which fell in February to 19.7 million barrels a day. That was down a million barrels a day from the 2007 average. An increase in U.S. demand, perhaps driven by the $152 billion in government stimulus payments to consumers, could crimp an already tight international oil market.

    The main factors that could send prices down, analysts say, would be a sharp downturn in global oil demand or some sudden flight from commodities among international investors.

    “It’s not that the genie is out of the bottle — it’s that 100 genies are out of the bottle,” said Daniel Yergin, chairman of Cambridge Energy Research Associates. Normally known for optimistic forecasts of lowering oil prices, Mr. Yergin’s firm now says the price could rise to $150 a barrel this year.

    The world’s diminished spare production capacity remains the strongest single catalyst for high prices, Mr. Yergin says. The world’s safety cushion — the amount of readily available oil that could be pumped in a moment of crisis — is now around two million barrels a day, according to most estimates. That’s just 2.3% of daily demand, and nearly all of the safety cushion is in one country, Saudi Arabia. Everyone else is pretty much pumping all they can, which makes the world vulnerable to political or other shocks.

    I think we can safely say that the SUV craze is over in the United States, and the current fad for crossovers might be next in line. Can it be that people will actually go back to driving actual cars that get good fuel economy? What is this country coming to?

  9. Maybe those people with SUV’s can rent them out as car pool vehicles. It will probably be the first time most of those SUV’s have ever carried all the passengers they were designed to transport.

  10. I think I’m getting a PHEV or an EV as soon as I can.

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