Bloomberg News

Brent Oil May Rise to $120 on Low Spare Supply, Goldman Says

February 15, 2012

(Updates with analyst comments in third paragraph.)

Feb. 15 (Bloomberg) -- Brent crude may rise to $120 a barrel in the next three months amid a decline in spare production capacity and potential supply disruptions, Goldman Sachs Group Inc. said.

Brent futures in London may reach the bank’s three-month price target as demand from developing nations, especially China “continued to surprise to the upside,” David Greely, Goldman’s New York-based head of energy research, said in a report dated yesterday. Prices may rise as increases in global crude stockpiles lag behind the five-year average, even as OPEC’s largest producer, Saudi Arabia, pumps at the highest rate in 30 years, according to the note.

“Despite Saudi pumping at these levels, world oil inventories are not building at a seasonal rate,” according to the report. “OPEC spare capacity is approaching dangerously low levels, just as world economic growth is beginning to strengthen.”

The slower buildup reflects a drop in output outside the Organization of Petroleum Exporting Countries, Goldman said. OPEC’s spare capacity was down 26 percent since March to 4.685 million barrels a day in January, according to data compiled by Bloomberg. That’s the lowest level since November 2008.

Stockpiles held by the 34 nations in the Organization of Economic Cooperation and Development climbed by 11.4 million barrels in January, less than the five-year average increase of 43.2 million, according to preliminary data in the International Energy Agency’s Monthly Oil Market report.

Brent for April Settlement rose as much as 75 cents, or 0.6 percent today, to $118.10 a barrel on the ICE Futures Europe exchange. The contract reached $118.59 on Feb. 9, the highest since July 22.

Saudi output reached a 30-year high of 9.85 million barrels a day in August and has slipped to 9.65 million in January.

--Editors: Mike Anderson, Paul Gordon.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net

To contact the editor responsible for this story: Mike Anderson at manderson34@bloomberg.net


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