Goldman Finally Gets It

Goldman Raises Year-End Oil Price Forecast to $85

Sept. 17 (Bloomberg) -- Goldman Sachs Group Inc. raised its yearend oil-price forecast to $85 a barrel and said there was a ``high risk'' of a jump above $90 because supplies will drop to critical levels in the fourth quarter, when heating demand peaks.

Goldman increased its 2007 yearend forecast from a previous prediction of $72 a barrel, analysts at the world's biggest securities firm said in a research note today. Prices are forecast to reach as high as $95 a barrel by the end of 2008, Goldman said.

Surging oil prices threaten to erode the profits at energy consuming companies such as Air France-KLM Group, Europe's biggest airline, whose first-quarter earnings missed analyst estimates because of higher jet fuel costs. Crude oil touched a record $80.50 a barrel in New York today on concern an OPEC production increase starting Nov. 1 won't come soon enough to bolster supplies for the northern hemisphere winter.

``In the current environment, the risk of oil prices spiking to $95 remains very high should inventories continue to draw down to critical levels,'' Jeffrey Currie, a London-based commodity analyst at Goldman, said in a telephone interview today.

The 500,000-barrel-a-day output increase announced by the Organization of Petroleum Exporting Countries last week to assuage fears of a supply shortfall ``will be too little, too late,'' the Goldman report said.

Oil inventories held in Organization for Economic Cooperation and Development nations will shrink at a rate of 1.5 million barrels a day next quarter, compared with the seasonal norm of a 0.5 million-barrel-a-day drop, because demand is that much stronger than supply, Goldman said.

World oil production during the summer was almost 1 million barrels a day lower than a year earlier while demand was 1 million barrels a day higher, the research note said.

This is extremely bullish. Moo.