Oil to reach $140 a barrel by the end of 2012

27 May 2011

25 May 2011 | Lindsay Clark

Investment adviser Goldman Sachs is forecasting supply constraints will push oil prices up to $140 (£87) a barrel by the end of 2012.

In a note to its clients, the firm said short-term shocks that affected supply, such as political unrest in north Africa and the Middle East and the natural disasters in Japan, that pushed prices up recently and threatened to weaken demand for key commodities including oil and copper, would abate. But underlying demand would still push prices up.

“Although the economy has likely shifted into a slower, but sustained, growth environment, we continue to expect that economic growth will likely be sufficient to tighten key supply constrained markets in [the second half of 2011], leading to higher prices from current levels,” the report said.

The report forecast that by the end of 2012, crude oil would be $140 (£87) a barrel and would be at $130 (£80) a barrel by this time next year. It raised the forecast for prices at the end of 2011 from $105 (£64) to $120 (£74) per barrel.

The report argued that although shocks from recent natural disasters had affected market prices in the short-term, the effects of disruption in the Middle East and north Africa could be felt in the longer term.

“We expect that the ongoing loss of Libyan crude oil production… will continue to tighten the oil market to critical levels in early 2012, with rising industry cost pressures likely to be felt this year,” the report said.

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