Oil shot to a record high near $128 a barrel on Friday after Goldman Sachs, the most active investment bank in energy markets, forecast a continued spike in prices through the end of the year due to thin supplies. The rally came as Opec kingpin Saudi Arabia rebuffed an appeal from US President George W Bush for more oil supplies to ease pressure on the US economy, already hard hit by a housing slump and credit crunch.
Goldman Sachs raised its forecast for average oil prices for the second half of 2008 to $141 a barrel from $107 because of tight inventories —a prediction that would require a rapid run up in current prices to come true. Oil prices have risen six-fold since 2002 and doubled since last year as rising demand from China and other developing nations outpaced new supply.
US crude gained $2.50 to $126.62 a barrel after touching a peak of $127.82 earlier in the day. London Brent rose $2.48 to $125.11.
Goldman earlier this month predicted that oil prices could scale $200 within the next two years.
Diesel has taken center stage in the world energy crunch as tight power supplies in China, South Africa, Chile, Argentina, and parts of the Middle East triggered a boom in demand for middle distillates for electric generators. Chinese demand for imported diesel is expected to rise even further in June after this week’s deadly earthquake disrupted gas supplies to major cities and as companies built stockpiles ahead of the summer Olympics. “People are looking at diesel. The situation is worse since the earthquake on Monday in China,”
The boom in diesel consumption added to already robust demand from the European vehicle fleet, thinning inventories on both sides of the Atlantic.
Adding support to oil’s rally, the Organisation of the Petroleum Exporting Countries (Opec) has repeatedly said there is no need to add supply to the market. US President Bush arrived on Friday in Saudi Arabia, the world’s biggest oil exporter, where he renewed his appeal for more oil. In response, Saudi Arabia repeated its pledge that it would pump as much oil as needed to meet demand but saw no need for a hike at the moment.
Opec’s smallest producer, Ecuador, offered the first dissenting view from the group, saying members should consider raising output because record prices are hurting the poor. “I think Opec has to deal with this issue, because this is hitting all the poorest countries that are oil importers,” Ecuador’s President Rafael Correa told reporters in the Peruvian capital, Lima.
The dollar extended losses against the euro on Friday, hurt by a report showing US consumer confidence tumbled in May to its lowest level in 28 years. The sliding dollar has devalued US financial assets, prompting investors to move cash to commodities which helped fuel oil’s rally this year.
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