Oil could hit $105, predicts Goldmans

The oil markets are entering a "super-spike" period that could see the price of oil shoot up to $105 a barrel, Goldman Sachs warned yesterday.

The oil markets are entering a "super-spike" period that could see the price of oil shoot up to $105 a barrel, Goldman Sachs warned yesterday.

The bank said its new forecast could even prove conservative "if there is a supply disruption in a major oil-exporting country". It raised its "super-spike" forecast range for oil from $50-$80 a barrel to $50-$105, as a result of the continuing strength of demand for oil, especially from the US and China.

At about $100 a barrel, the price of oil would equal, in real terms, the level hit as a result of the two "oil shocks" of the 1970s - which triggered a global recession.

The Goldman report triggered another rally in the oil markets, with US crude up $2.11, or 3.9 per cent, by the afternoon to $56.10 a barrel, within $1.50 of a $57.60 record high struck on 17 March.

Analysts at Goldman wrote: "In our view, the current environment looks more like the 1970s than it does the 1980s or 1990s from the perspective of oil markets. During the 1970s the world experienced an extended period of very high oil prices, stagflation, misery indices, the fall of the Shah of Iran, an Iranian hostage crisis, the fear that the world was running out of oil, two major Arab oil embargoes and a deep global recession."

The bank said the only way out of the upward spiral was for the higher price to choke off energy consumption and thereby create spare production capacity, which existed in much of the 1980s and 1990s.

For 2005, Goldman raised its price forecast from $41 a barrel to $50, and for next year from $40 to $55. The predictions made by the bank make it among the most bullish of major forecasters.

Goldman said its higher numbers were not driven by the prospect that political pressure in oil-exporting countries - which are concentrated in the volatile Middle East - would disrupt supply.