LONDON – Oil markets have entered a "super-spike" period that could see 1970's-style price surges as high as $105 a barrel, investment bank Goldman Sachs (GS) said in a research report.
Goldman's Global Investment Research note also raised the bank's 2005 and 2006 New York Mercantile Exchange (search) crude price forecasts to $50 and $55 respectively, from $41 and $40.
"We believe oil markets may have entered the early stages of what we have referred to as a "super spike" period — a multi-year trading band of oil prices high enough to meaningfully reduce energy consumption and recreate a spare capacity cushion only after which will lower energy prices return," Goldman's analysts wrote.
The analysts said resilient demand had led them to revise their super-spike range to $50-$105 per barrel from $50-$80 previously, noting strength in oil demand and economic growth in the United States and China especially.
Crude futures climbed more than $1 a barrel Thursday on the heels of rising prices for gasoline and heating oil futures the previous day.
Light, sweet crude (search) on the New York Mercantile Exchange (search) rose $1.21 to $55.20 a barrel in morning trading. Heating oil rose nearly 3 cents to $1.636 a gallon, while unleaded gasoline also rose about 3 cents to $1.627 a gallon.
U.S. crude oil futures on the New York Mercantile Exchange have averaged $50.03 per barrel so far in 2005.
Goldman Sachs is the biggest trader of energy derivatives, and its Goldman Sachs Commodities Index is a widely-watched barometer of energy and commodities prices.
Goldman pointed out thin spare capacity in the energy supply chain, and long response times for bringing on supply additions, as well as robust demand in the United States and in developing heavyweights China and India, despite the recent rapid increase in energy costs.
Goldman said the current oil market environment looked more like that seen in the 1970s — when oil prices spiked dramatically following the Arab oil embargoes on supply to the West and Iran's revolution.
High energy prices threw the world into recession, and triggered several years of declining oil demand.
Supply growth continued unabated and bolstered spare capacity, which in turn stabilized oil markets at lower prices — a phase of the market cycle that Goldman's researchers said had only just ended.
The bank also said its super-spike forecast range was conservative, noting declining U.S. gasoline spending as a proportion of GDP and consumer spending.
During 1980-1981, gasoline spending in the United States corresponded to an average 4.5 percent of GDP, 7.2 percent of consumer expenditures, and 6.2 percent of personal disposable income, Goldman said.
"Our new $50-$105 per bbl super spike range perhaps conservatively corresponds to gasoline spending in the United States that reaches 3.6 percent of forecasted GDP, 5.3 percent of consumer expenditures, and 5.0 percent of personal disposable income.
Goldman said that were it to assume gasoline spending needed to reach 1970s levels to destroy demand, its upside super-spike estimate would be $135 per barrel for New York crude.
"Perhaps the ultimate answer to high how oil prices need to go before demand destruction occurs is derived from knowing when American consumers will stop buying gas guzzling sport utility vehicles and instead seek fuel efficient alternatives.
"Based on our analysis of gasoline spending and the economy noted above, we estimate that U.S. gasoline prices may need to exceed $4 per gallon."