Oil price will shrug off U.S. woes: Goldman
LONDON (Reuters) - Oil's long-term supply constraints should make any fall in prices due to a recession in the United States only temporary, Giovanni Serio, an oil analyst at Goldman Sachs (GS.N) told Reuters.
Oil tumbled on Monday as investors took profits in financial markets unnerved by the bailout of U.S. investment bank Bear Stearns BSC.N over the weekend.
The oil market had hit a string of record highs over the past week, taking it to $111.80 a barrel and had jumped about 16 percent since the start of this year partly due to the weak dollar, but also reflecting long-standing structural constraints on supply.
Investment bank Goldman Sachs said there was potential for a significant pull-back because of a U.S. slowdown, financial market gyrations and a seasonal increase in oil supplies due to the end of winter and oil refinery shut-downs for maintenance.
"The U.S. slowdown is already affecting oil demand and that is why we expect pressure on prices," said Giovanni Serio, oil analyst at Goldman Sachs.
But he remained positive on oil long-term because of the market's deeply-ingrained structural constraints that mean supply cannot easily rise to meet rapidly increasing demand from emerging countries like China and India.
"The driver is not demand, it's supply," he said, pointing to 20 years of underinvestment in new oil production.
In March 2005, when U.S. crude was testing new highs above $55 a barrel, Goldman Sachs said oil had entered the early stages of a "super-spike" period that could see prices surge as high as $105 a barrel.
SPECULATORS?
The weak dollar has played a part in oil's ascent as well as inflows of money into commodities as an alternative to equity and bond markets buffeted by fallout from the credit market crisis.
Members of the Organization of the Petroleum Exporting Countries have blamed speculators for driving oil higher.
But data on the New York Mercantile Exchange, where U.S. crude oil futures are traded, does not point to a big speculative inflow this year.
"We are now roughly at the same levels as in July last year in terms of speculative length when the price was $70," said Serio from Goldman Sachs.
He said the data, provided by the U.S. Commodities Futures Trading Commission, was a useful indicator of speculators' activity, but gave only part of the full picture.
Big investment banks which trade on NYMEX primarily for producers or consumers of oil are classed as "commercial" users of the market, but if they trade for hedge funds, for example, they remain classified as commercials. Continued...
