- The Washington Times - Wednesday, May 7, 2008

Crude oil could rise to between $150 and $200 a barrel within two years as growth in supply fails to keep pace with demand from developing nations, Goldman Sachs Group Inc. analysts reported yesterday.

Goldman analyst Arjun N. Murti first wrote of a “super spike” in March 2005, when he said oil prices could range between $50 and $105 a barrel through 2009. The price of crude traded in New York averaged $56.71 in 2005, $66.23 in 2006 and $72.36 in 2007.

Oil rose to an intraday record of $122.73 yesterday on speculation demand will rise during the peak U.S. summer driving season. Light, sweet crude for June delivery retreated from its high to settle up $1.87 at a record $121.84 on the New York Mercantile Exchange.

“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 their report.

A report Monday showed U.S. service industries expanded in April, signaling higher energy use. The Institute for Supply Management said its index of non-manufacturing businesses, which make up almost 90 percent of the economy, grew for the first time since December.

China, meanwhile, is increasing refining capacity and boosting imports to meet rising demand for the Olympic Games. China, the world’s fastest-growing major economy, has more than doubled its oil use since crude prices dropped to this decade’s low of $16.70 a barrel on Nov. 19, 2001.

Deutsche Bank AG chief energy economist Adam Sieminski, who forecasts oil averaging $102.50 next year, said yesterday that Asian demand and limited extra supply will keep pushing oil to record levels. There’s a “huge risk” that prices will rise to a level, perhaps $200, “when demand finally collapses because ordinary people can no longer afford to burn as much energy as they are burning now,” Mr. Sieminski said in an April 25 report.

Spare production capacity of the Organization of Petroleum Exporting Countries is low and the group’s exports may fall because of “lackluster” supply growth and rising domestic consumption in member countries, the Goldman analysts said.

“There are supply constraints with many producers, especially from non-OPEC [nations] struggling to find new reserves, and China and Middle East demand keeps growing,” said Victor Shum, senior principal at energy consultant Purvin & Gertz Inc. in Singapore. “The fundamentals are prompting investors to get into oil in a big way and all that points to higher prices.”

Crude oil’s increase above $100 a barrel was driven partly by the dollar’s decline against the euro, which boosted oil prices because it made commodities cheaper for buyers outside the U.S. and attracted investors as a hedge against inflation.

The U.S. currency has declined more than 5 percent against the euro so far this year.

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