Goldman Sees 'Explosive' Commodity Rallies, $175 Oil
Claudia Carpenter and Alexander KwiatkowskiBloombergSaturday, March 15, 2008
Commodities may have "explosive rallies'' in the next couple of years, with crude oil rising to $175 a barrel, according to Goldman Sachs Group Inc.
Political decisions on money flows, labor and technology are ``substantially constraining supply growth'' of commodities, Goldman analysts including Jeffrey Currie in London wrote in a report today. ``This will likely support the ongoing structural bull market in commodities until these policy-driven investment constraints are removed and/or demand is adjusted.''
Commodities are in their seventh year of gains as underinvestment in refineries, mines and land sent prices for oil, gold, platinum and wheat to records. More natural resources are controlled by political entities than at any time since the 17th century, according to the Goldman report.
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Oil rose to a record $111 a barrel yesterday as the tumbling value of the dollar attracted investors to the crude market. The U.S. currency yesterday fell below 100 yen for the first time since 1995 and dropped to an all-time low against the euro. A weak dollar draws investors to oil as commodities become cheaper for buyers using other currencies.
Crude at $175 a barrel ``represents the price level required to maintain trend economic growth against our anemic supply growth forecasts, assuming growth in the U.S. re- accelerates early next year,'' Goldman said.
North America
OPEC has cut its production forecast for countries that are not members of the organization, citing lower output from western Europe, North America and Mexico.
Non-OPEC production will run at a rate of 50.37 million barrels a day this year, the Organization of Petroleum Exporting Countries said today in a monthly report, cutting its previous projection by 160,000 barrels a day. OPEC crude production averaged 32.09 million barrels a day in February.
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