Goldman fears severe oil market shortages

Goldman Sachs said on Thursday oil markets were driven by fears of unrest contagion to other producing nations after Libya and that another disruption could create severe oil shortages and require demand rationing.

"The market cannot accommodate another disruption, in our view, with the problems in Libya potentially absorbing half of OPEC's spare capacity," Jeffrey Currie said in a research note.

Brent oil surged over 7.5% to its highest since August 2008 on Thursday on concern the bloody unrest that has cut more than a quarter of OPEC-member Libya's crude output could spread to other major producers, including top exporter Saudi Arabia.

"This makes the risks now associated with further contagion much higher than they were several days ago, as further disruptions could now create severe shortages in global oil markets that would require substantial demand rationing," Currie said in his note.

"Although we still see contagion to the large energy producers in the Gulf as relatively low, the stakes associated with further contagion are now much higher, which creates even further upside risk to our price forecasts," the note said.

However, it added that the high level of global inventory could easily accommodate a full outage of Libyan only exports for more than 100 days and OPEC spare capacity could easily absorb the entire loss if needed.