Why oil prices will spike again soon
By Colin Barr
May 23, 2011
How long till the next oil shock?
Energy prices have been coming down this spring as fears of a Middle East blowup fade. But persistent global demand, tepid supply growth and easy money mean it may not be long till the next damaging spike, Goldman Sachs economists say.
Oil prices could surge again by the end of 2012, economists Jan Hatzius and Andrew Tilton wrote in a note to clients this past weekend. They say the snail-like pace of global oil supply expansion – which Goldman projects at 1% or so annually – can’t keep a petroleum-addicted world economy rolling without prices rising, perhaps sharply.
So don’t get too used to paying a mere $3 and change for gasoline. Higher prices are on the way soon enough, thanks to stretched supplies and a Federal Reserve spigot that is likely to remain wide open for years to come.
“The fundamental story of increased oil scarcity is unchanged, and our commodity strategists now see distinct upside risks to their current forecast of $120/barrel for Brent crude by late 2012,” Hatzius and Tilton write. “So the impact of scarcer oil and higher oil prices on economic activity remains at the top of our list of worries.”