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Goldman Sachs Raises Oil Outlooks As Gas Prices Surge

National average gas price climbs to $2.59 per gallon

By Mark Huffman
ConsumerAffairs.com

June 5, 2009
How high will oil prices go this summer? They’re already off to a pretty good start, nearly breaking $70 a barrel in Thursday’s trading. A major bank thinks they’ll go much higher.

In its forecast for the rest of the year, Goldman Sachs Group raised its price target for oil to $85 a barrel by the end of 2009. Costly oil, it seems, is the price of a recovering economy.

“As the financial crisis eases, an energy shortage lies ahead,” said Goldman analysts Jeffrey Currie and David Greely in their report.

Already, gasoline prices are reflecting the upward movement in oil prices, even though the U.S. is still in a recession and has plenty of oil and gas on hand. The market is all about the future, and traders are pushing prices higher as they bet the economy will improve and demand for energy will rise.

The national average price of self-serve regular gasoline is $2.597 today, up more than 12 cents a gallon from last Friday and 48 cents higher than just a month ago, according to AAA’s daily Fuel Gauge Report. They haven’t been this high since the last week of October 2008, and at that time they were headed down, not up.

So far, average prices remain well below $3 a gallon in all states, with California edging out Alaska as the state with the most expensive gas, averaging a price of $2.86 a gallon. New Jersey has the cheapest average price, at $2.404 a gallon. New York’s average price is $2.697 a gallon.

J.R. Watson, AAA’s director of federal relations, says oil and gasoline prices are headed higher simply because things look to be returning to normal.

“Overseas equities markets rallied on word Chinese manufacturing expanded in May. There is also hope that the bankruptcy of General Motors Corp will bolster the health of that U.S. giant,” Watson said. “Other factors contributing to the upward swing in oil and retail gasoline prices include investor’s belief they are beginning to see signs of increased global economic activity, particularly in Asia, which may indicate the global economic recession is waning.”

Also, following the bottoming out of oil prices late last year, the Organization of Petroleum Exporting Countries affected significant oil production cuts in the hopes of stabilizing prices. Those productions cuts, many investors believe, are finally having an effect on price despite the massive inventories of oil and gasoline still available.

Recent comments by various OPEC ministers suggest that the organization, which produces 40 percent of the world’s oil, is targeting a per barrel price point of $70-$80 by year’s end. These developments have created a certain degree of uncertainty surrounding the long term direction of oil and gasoline prices, Watson said.

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