In reports published on Monday, both Goldman Sachs and Morgan Stanley increased their price forecasts for European benchmark Brent crude, citing decreasing spare capacity among the Organization of Petroleum Exporting Countries as a result of progressing supply disruptions in Libya and firm demand in emerging markets.
Goldman Sachs projects its Brent forecast for the end of 2012 to $140 a barrel from $120 a barrel and its 2011 year-end forecast to $120 a barrel from $105 a barrel. The increase in its oil forecast came as it also hiked forecasts for a range of commodities including aluminum and nickel.
Likewise, Morgan Stanley said it expects Brent to reach $120 a barrel in 2011 and $130 a barrel by 2012, compared with earlier forecasts of $100 a barrel and $105 a barrel.
Monday, JP Morgan also reiterated its forecast that Brent should reach $130 a barrel by the third quarter of 2011, citing “compelling evidence the global economy will bounce back from temporary setbacks.”
Price forecasts are closely watched by investors and Goldman Sachs in particular is capable of moving the market. Research from the bank has had significant traction. Oil prices went up over $1 earlier Tuesday hitting intraday highs of $99.15 a barrel on Nymex crude and $111.72 a barrel on Brent, as the forecasts seemed to strengthen investor sentiment.
Crude-oil futures rallied 1.9% on Tuesday, buoyed by a weaker dollar and price forecast upgrades. Crude for July delivery added $1.89 to $99.59 a barrel on the New York Mercantile Exchange.
Not all market observers are as positive, indicating oil’s recent steep declines as sign that oil prices at the levels projected by Morgan Stanley, Goldman Sachs and J.P. Morgan are not realistic in the long term.
Oil prices have plunged around 15% since the beginning of May after nearing $130 a barrel in April, amid fears that high oil prices could hurt the vulnerable global economy.
