Goldman sees new oil rally after predicting drop
By Dmitry Zhdannikov
LONDON (Reuters) - Goldman Sachs, which in April predicted this week's major correction in oil prices, said on Friday that oil could surpass its recent highs by 2012 as global oil supplies continue to tighten.
The Wall Street bank, seen as one of the most influential in commodities business, said it did not rule out a further limited short-term fall in oil prices if macro-economic data, which it said had sparked this week's crash, continued to disappoint.
News of Goldman's mid-term outlook on Friday prompted a $1 a barrel jump in oil prices, helping oil to pare some of its earlier heavy losses. U.S. and Brent crude futures were down 2 percent by 1200 GMT after a 10 percent slump on Thursday.
"It is important to emphasize that even as oil prices are pulling back from their recent highs, we expect them to return to or surpass the recent highs by next year," Goldman Sachs' analysts said in a research note.
"We continue to believe that the oil supply-demand fundamentals will tighten further over the course of this year, and likely reach critically tight levels by early next year should Libyan oil supplies remain off the market," it said.
It said it believed that this week's correction in oil prices, which fell from above $125 per barrel of Brent crude to below $106 on Friday, was sparked by disappointing economic data releases and U.S. oil inventory data.
"The sell-off yesterday (May 5) has likely removed a large portion of the risk premium that we believe has been embedded in oil prices, which could suggest further downside may be limited from here."
"However, we remain wary of potential further downside should economic data releases in coming days continue to disappoint, with the focus now turning to today's (May 6) non-farm payroll report in the United States."
The U.S. Labor Department was due to release its jobs report for April at 8:30 a.m. on Friday.
GOOD BUYING OPPORTUNITY?
Goldman was one of the first banks to predict $100 oil last decade, in 2005 when prices were closer to $50 a barrel, but it stayed bullish for some time after oil peaked at $147 in 2008.
"In terms of timing, Goldman got it (the crash) right this time. Well done," said an oil trader with a major rival bank.
"It (this week's fall) was a move driven by macro funds after U.S. and German data disappointed and (European Central Bank President Jean-Claude) Trichet did not deliver on yet another rate rise," he said.
"With Asian funds having liquidated some of their position today I think we will now see prices stabilizing and even if U.S. jobs data is poor this afternoon, I don't think it will turn as horrible as yesterday," he added.
Another major commodities player among banks, Barclays Capital, which also predicted prices could correct but not as steeply as Goldman, said on Friday the current levels already represented a good buying opportunity.
"While further downside from potential weaker macro releases cannot be ruled out, the general trend from here should be higher, rather than lower, in our view," said Amrita Sen.
She added that worries about tight supplies and unrest in the Middle East will outweigh concerns about U.S. gasoline demand destruction or slower Asian demand due to inflation.
"Fundamentally, in the energy space and in crude oil, not a lot has actually changed. We have got diminishing spare capacity, globally demand is picking up, we have got some supply-side issues -- so the factors that caused the price rises right throughout 2010 are still there," he said.
(Reporting by Dmitry Zhdannikov, additional reporting by Claire Milhench, editing by Anthony Barker)