Monday May 9, 2011
JPMorgan raises oil price forecasts to US$120 a barrell
Producers not matching rising demand, says bank
LONDON: JPMorgan Chase & Co raised its oil price forecasts because Organisation of Petroleum Exporting Countries (Opec) and other producers aren't matching rising demand and consumers will take time to react to higher prices.
The bank boosted its 2011 Brent crude forecast to US$120 a barrel from US$110, and changed its estimate for West Texas Intermediate crude to US$109.50 from US$99. Forecasts for 2012 prices were raised to US$120 and US$114, respectively.
“While financial bushfires or perhaps a rapid resolution to the Libyan civil war could radically alter market dynamics, the balance of both risks and fundamentals still points to a supply-constrained world,” JPMor-gan analysts led by New York-based Lawrence Eagles wrote in a report on Friday.
Oil futures posted their biggest weekly decline since December 2008 last week amid concern about the pace of the economic recovery, with London-traded Brent plunging 13% to US$109.13.
JPMorgan forecasts supply to fall short of demand by 600,000 barrels a day during the third quarter, even with the assumption that the Opec increases output by 1.2 million barrels a day in coming months.
The gap could narrow to 300,000 barrels a day by the fourth quarter, assuming Saudi Arabia increases production to 9.5 million barrels a day, Angola to 1.7 million and Iraq to 3 million, though “that may prove a stretch,” the bank said. Output from those three Opec countries in March was 8.66 million, 1.56 million and 2.69 million barrels a day, respectively, it said.
Consumers draw on stockpiles when production fails to match demand. Still, “with inventories already below the five-year average, any supply gap will have to be balanced by lower demand growth, rationed by higher prices,” the New York-based bank said.
Next quarter there's a risk oil might move toward record levels near US$150 set in 2008, unless there's a surprise increase in Opec output beyond 29.4 million barrels a day or slower economic growth, the bank said. JPMorgan forecast Brent to average US$130 and WTI US$116 during the July-to-September period.
While the bank lowered its estimate of world demand by 100,000 barrels a day, in part because of the earthquake-led disruptions in Japan, it raised its forecast for Chinese consumption, saying data implies China's crude-oil inventories have been “drawn heavily” in the past six months.
Meanwhile, Goldman Sachs, which in April predicted last week's major correction in oil prices, said on Friday that oil could surpass its recent highs by 2012 as global oil supplies continue to tighten.
The Wall Street bank, seen as one of the most influential in commodity markets, said it did not rule out a further short-term fall after Thursday's near record drop, especially if economic data continued to disappoint.
But the bank reaffirmed its traditional long-term bullish view of oil, helping crude to pare some of its earlier heavy losses on Friday. Agencies
Goldman stuck largely to the same view it first aired three weeks ago a medium-term correction followed by a renewed ascent.
“It is important to emphasise that even as oil prices are pulling back from their recent highs, we expect them to return to or surpass the recent highs by next year,” Goldman Sachs' analysts said in a research note.
“We continue to believe that the oil supply-demand fundamentals will tighten further over the course of this year, and likely reach critically tight levels by early next year should Libyan oil supplies remain off the market,” it said.
Oil prices remained extremely volatile on Friday, roiled by better than expected US jobs data, which eased fears about global economic recovery that contributed to a 10% price crash on Thursday.
Goldman said it believed last week's correction in oil prices was sparked by disappointing economic data releases and US oil inventory data. Agencies