Jay Ruskin: The Economy
Goldman Sachs predicts oil over $60/barrel for rest of decadeGoldman Sachs said Thursday that the firm expected oil to remain above $60 a barrel for the rest of the decade, the Financial Times of London reports.[1] -- This "sign of structural change in the oil market" (read: Peak Oil) led the financial trading company to peg oil at a much higher price than its compeers: "Barclays Capital forecasts that WTI will remain above $50 over the next five years, Merrill Lynch has a long-term WTI forecast of $45 and Deutsche Bank estimates a long term WTI price of $38-$40," Kevin Morrison reported. -- In a separate article by the same reporter, the FT noted that crude oil prices were down about 7% off their all-time nominal highs last week, to $63.27 a barrel on the NYMEX for West Texas Intermediate for September delivery.[2] -- But early Friday Reuters reported that the price had risen to $63.69 a barrel, in part on concerns about "reduced supplies from South American oil producer Ecuador. -- State-owned Petroecuador on Thursday declared force majeure on its oil exports due to a protest in Amazon provinces that has slashed its production. -- The company usually exports about 144,000 barrels per day. But the protests, which began on Monday, have cut its production to 29,000 bpd from the usual 201,000 bpd."[3] --Jay. 1. Energy Utilities Mining
GOLDMAN SACHS SEES OIL ABOVE $60 FOR FIVE YEARS
Financial Times (UK) http://news.ft.com/cms/s/f0533230-100e-11da-bd5c-00000e2511c8.html Goldman Sachs, one of the biggest financial traders in the commodities sector, expects U.S. benchmark oil prices to remain above $60 a barrel for the rest of the decade. In a report issued on Thursday, the U.S. bank says prices are not high enough to stimulate oil companies to invest more of their swelling cash reserves in new energy infrastructure. Goldman said earlier this year that oil markets had entered a "super-spike" period that could see prices surge as high as $105 a barrel. On Thursday it raised its long-term average, which covers five years, for West Texas Intermediate, the U.S. benchmark, by $15 from the previous estimate of $45 set earlier this year. The latest estimate is now more than double the bank's long-term oil price forecast of two years ago. The series of increases since are a sign of a structural change in the oil market due to the lack of spare capacity in oil production and refining of petroleum products. With the revision, Goldman's forecast is now higher than that of its peers. Barclays Capital forecasts that WTI will remain above $50 over the next five years, Merrill Lynch has a long-term WTI forecast of $45 and Deutsche Bank estimates a long term WTI price of $38-$40. Jeffrey Currie, managing director of global investment research at Goldman Sachs, said the rise in long-dated oil prices reflected a significant increase in the industry's cost structure. The oil industry is moving into a phase of large-scale investment in new fields and refineries as the surge in demand has reduced companies' ability to absorb supply shocks. Mr. Currie said the rise in demand for new investment in the oil sector came at a time when production costs were already rising because of limited access to oil reserves, a shortage of labor and insufficient equipment such as drilling rigs. More than half the world's oil reserves are in Saudi Arabia, Iran, Iraq, Kuwait, and the United Arab Emirates, which are mostly off-limits to foreign oil companies. Oil companies are uncertain whether to continue to base long-term project planning on a price of $20-$30 a barrel, according to Mr Currie. Royal Dutch Shell highlighted the problem recently when it said the projected cost of the Sakhalin 2 liquefied natural gas project in Russia had doubled to $20bn, and the cost of the Athabasca oil sands project in Canada had doubled to about $6bn. "The high oil price has given oil companies the best of times and the worst of times," Mr. Currie said. He said the high prices were boosting oil company profits but the cost of projects was rising, creating bigger financial risks on each project. 2. Markets Commodities
UNCERTAINTY PERSISTS OVER CRUDE PRICES
Financial Times (UK) http://news.ft.com/cms/s/bb8db01a-0fd3-11da-bd5c-00000e2511c8.html The uncertainty over oil futures continued on Thursday, with crude prices well down from the record peaks of recent sessions on concerns that high energy prices would weaken economic activity. Those fears followed higher-than-expected U.S. inflation data and Wal-Mart’s comments that high oil prices were hitting consumer spending. However, U.S. data on Thursday pointed to stronger economic conditions that would support relatively high oil prices. IPE Brent for October delivery reversed early gains to fall 16 cents to $62.40 a barrel by the close of London trade. The slide extended the decline in the previous session, when October Brent fell by $2.52 after the latest weekly U.S. inventories report showed further increases in crude and distillate supplies. The benchmark Brent contract is about 7 per cent below the record $66.85 reached on Monday. September Nymex WTI eased 25 cents to $63 a barrel before recovering to close up 2 cents at $63.27 on the New York Mercantile Exchange. It had fallen $2.83 on Wednesday after reaching a record $67.10 last Friday. “The market has only fallen by that magnitude a handful of times, and it does so because of a reason, and that reason is that people are worried about the effect of high oil prices on demand,” said one London-based oil trader. U.S. gasoline futures had another large fall, with the September Nymex gasoline contract dropping 4.2 cents to $1.8490 a gallon in New York trade, down about 9 per cent from the record high reached on Wednesday. US natural gas futures also fell heavily after a bigger-than expected-increase in U.S. gas volumes held in storage. Nymex September henry hub natural gas futures dropped 5 per cent to $8.915 per million British thermal units. Goldman Sachs raised its five-year average U.S. crude price forecast to $60 a barrel from $45 because of uncertainty about investment levels in the oil industry. It said it also expected the WTI price to average about $67 for the rest of the year and average about $68 next year. Global nickel consumption rose by only 1 per cent in the first half of 2005, compared with the same period last year despite a strong rise in Chinese use, the International Nickel Study Group said. The INSG said that although Chinese consumption had risen by more than 30 per cent, global consumption was up by only 1 per cent due to declines elsewhere. About two-thirds of nickel consumption is used in stainless steel production. The three-month nickel price was $150 lower at $14,900 a ton on the London Metal Exchange. 3. NYMEX OIL BOUNCES BACK AFTER $4 SLIDE FROM RECORD
Reuters TOKYO -- U.S. crude oil futures moved higher on Friday in what traders called a technical bounceback after a nearly $4 slide in the previous four sessions. Crude had fallen sharply from a historic high of $67.10 struck on Aug. 12 amid speculation that high prices were eroding demand, although some traders said the market's bullish strength remained mainly because of low U.S. gasoline supplies. By 0020 GMT, NYMEX crude for September delivery had gained 42 cents, or 0.66 percent, to $63.69 a barrel in ACCESS electronic trading. Volume was thin, with 1,438 contracts changing hands. On Thursday, the contract settled almost steady at $63.27, up 2 cents. It had fallen as low as $62.25, the cheapest price since Aug. 8. Support was pegged at $62, with resistance at $66. "The market seems to be sustaining its strength," a Tokyo-based trader said, adding he had thought prices would fall much further. "At this moment, the bounce might be technically inspired. But it happened very quickly. That might be suggesting the market is fundamentally strong." Another trader said an immediate fundamental factor that prompted the quick bounce was the low gasoline stock levels in the United States. "Even though gasoline demand has slowed down, with the driving season nearing an end, supplies are thin," he said. On Wednesday, figures from the U.S. Energy Information Administration showed a slight slowdown in gasoline demand over the last four weeks. But the government also said domestic gasoline stocks fell by a larger-than-expected 5 million barrels to 198.1 million barrels in the Aug. 12 week from the week before. Stocks are now 12.1 million barrels below the level of a year ago. In London on Thursday, October Brent crude settled 16 cents lower at $62.40 a barrel. NYMEX September gasoline stood 1.51 cents higher at $1.8780 a gallon. It settled 2.81 cents lower at $1.8629 on Thursday. NYMEX September heating oil was up 1.11 cents at $1.8016 a gallon. Thursday's settlement was $1.7905, up 0.66 cent. Other market players still see crude prices rising. Goldman Sachs on Thursday raised its average U.S. oil price forecasts for the rest of this year and for next year by $13.50 and $13, to $67 and $68 a barrel, respectively. Its previous forecasts were $53.50 and $55. The U.S. average price this year is $53.65. Traders were still edgy about reduced supplies from South American oil producer Ecuador. State-owned Petroecuador on Thursday declared force majeure on its oil exports due to a protest in Amazon provinces that has slashed its production. The company usually exports about 144,000 barrels per day. But the protests, which began on Monday, have cut its production to 29,000 bpd from the usual 201,000 bpd. On the Tokyo Commodity Exchange (TOCOM), January crude fell 180 yen to 39,610 yen per kilolitre (yen/kl). February gasoline was down 550 yen at 55,130 yen/kl. February kerosene was down 260 yen at 56,870 yen/kl. February gas oil had not traded.
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