Goldman Sachs Group Inc. (GS) said shrinking OPEC spare capacity and rising demand will tighten the global oil market this year and keep Brent crude prices “skewed to the upside.”
Increased exports from Saudi Arabia and Libya, members of the Organization of Petroleum Exporting Countries, are being absorbed by consumers, David Greely, the bank’s head of energy research in New York, said in a report distributed today. Spare capacity in the producer group, which is responsible for about a third of global supply, has dropped to “dangerously low levels,” he said.
“Brent crude oil prices will need to remain high in order to hold demand in line with supply,” Greely said. “OPEC spare capacity and world oil inventories are at their lows just as the world economic recovery is getting on a better footing.”
Brent, the European benchmark crude, rallied 11 percent in February, the most in a year, on concern European Union and U.S. sanctions over Iran’s nuclear program will disrupt supply from the Middle East. On the ICE Futures Europe exchange, the most actively traded contract for May settlement was at $124.68 a barrel today.
“We expect prices to average $130 in 2013, so we expect them to rise higher between now and then,” Greely said in a separate e-mail response to questions from Bloomberg News. “On a 12-month horizon we see Brent prices at $127.50.” Brent averaged $110.78 in 2011 and $80.32 in 2010.
OPEC’s ability to boost supply is declining after Saudi Arabia, the world’s biggest oil exporter, lifted production to the highest in 30 years, according to Goldman. Iran’s output has also dropped and U.S. and European sanctions may curb the Persian Gulf nation’s exports, the bank said.
Saudi Arabia last month pumped 9.69 million barrels a day of crude, according to a Bloomberg survey of analysts and producers. The kingdom can make up for any “perceived or real” shortfall in global oil supply, Petroleum Minister Ali al-Naimi said at the biennial International Energy Forum in Kuwait yesterday.
Last month’s price gain is “being vindicated” by data from the International Energy Agency, according to Goldman. The Paris-based energy adviser to developed nations yesterday predicted a “bumpy ride” for oil prices on reduced supply from non-OPEC producers.
Goldman reiterated its recommendation to buy West Texas Intermediate crude futures for September delivery, a call first made Feb. 22. The bank also said investors should sell the May- to-June timespread on WTI, the U.S. benchmark grade traded in New York.
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