Monday, April 04, 2005

Oil Price Super Spike

The oil price has entered a ``super-spike'' period that could see 1970's style oil price surges as high as $105 a barrel, investment bank Goldman Sachs said in a research report.

Goldman Sachs believe oil prices may have entered the early stages of what they have referred to as a ``super spike'' period -- a multi-year trading band of oil prices high enough to meaningfully reduce energy consumption and recreate a spare capacity cushion only after which will lower oil prices return.

The analysts said resilient demand had led them to revise their super-spike oil price range to $50-$105 per barrel from $50-$80 previously, noting strength in oil demand and economic growth in the United States and China especially.

Goldman Sachs is the biggest trader of energy derivatives, and its Goldman Sachs Commodities Index is a widely-watched barometer of energy and the oil price.

Goldman pointed out thin spare capacity in the energy supply chain, and long response times for bringing on supply additions, as well as robust demand in the United States and in developing heavyweights China and India, despite the recent rapid increase in oil prices.

Goldman said the current oil market environment looked more like that seen in the 1970s -- when the oil price spiked dramatically following the Arab oil embargoes on supply to the West and Iran's revolution.

The High oil price threw the world into recession, and triggered several years of declining oil demand.

Supply growth continued unabated and bolstered spare capacity, which in turn stabilized the oil price -- a phase of the market cycle that Goldman's researchers said had only just ended.

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