Crude oil pushed above $67 a barrel yesterday after a top OPEC official and a prominent investment bank predicted higher prices, despite concerns that a month-old rally is not supported by much evidence of a recovery in demand. West Texas Intermediate crude rose $1.61 to $67.73 a barrel, while Oman sour crude on the Dubai Mercantile Exchange was up more than $1, to $67.24 a barrel.
Analysts said markets were reacting to bullish forecasts from Goldman Sachs and Abdulla el Badri, the OPEC secretary general. Mr el Badri has said he expected to see prices reaching $70 to $75 a barrel by the end of the year. "We would like to see a stable price," Mr el Badri told Bloomberg, adding that OPEC was "not happy" with last year's record of $147 or with lower prices earlier this year at $40. "The marginal cost for alternative energy is $70 a barrel."
Goldman Sachs, which made a name for itself last year with bullish forecasts, scrapped its forecast of $65 yesterday and said prices could hit $85 by the end of the year, and $95 next year. "As the financial crisis eases an energy shortage lies ahead," Goldman analysts Jeffrey Currie and David Greely wrote in a research report. The analysts predicted oil would hit $75 within three months. Oil prices have rallied more than 20 per cent in the past month, tracking equities markets as investors reacted to expectations that the world economy had reached a bottom and was on a path to recovery. But many analysts do not believe the high prices are justified by low levels of consumption and the high levels of oil in storage.
At an oil conference in the capital this week, Hasan Qabazard, the head of research for OPEC, blamed speculators in the oil market for pushing crude prices too high. "I think the most important factor affecting the price of oil is the paper market," Mr Qabazard said. "The reason why oil prices have risen ... and stayed there, is more market sentiment than fundamentals.Whether this sentiment will lead to a sustainable recovery remains to be seen."
When oil rose to a record above $147 last summer, analysts said speculative interest in oil futures from hedge funds and other investors from outside the oil industry was a big factor pushing prices up. Over the longer term, OPEC expected higher demand to support the higher prices, Mr Qabazard said. He estimated the global demand-supply balance would average minus 1.2 million barrels per day this year, meaning the world would steadily decrease oil in storage.
"The recession is abating ... but how the recovery will play out is still wait and see," he said. * with Bloomberg cstanton@thenational.ae
