Goldman Expects ‘Weak’ Demand to Dominate Oil Market

Jan. 12 (Bloomberg) -- Goldman Sachs Group Inc. said “weak underlying economic fundamentals” will dominate the oil market as it maintained its forecast that prices will fall to $30 a barrel this quarter.

Oil inventories in Organization for Economic Cooperation and Development nations will likely rise to a 10-year high in the next two months, Goldman analysts Giovanni Serio and Jeffrey Currie said in a note to clients dated Jan. 9.

“The ongoing market surplus will likely continue to drive inventories higher,” Goldman’s analysts said. “Weak demand and large surpluses will dominate, pushing prices lower.”

Crude futures fell below $40 a barrel in New York today on speculation that the first simultaneous recession in the U.S., Europe and Japan since World War II will continue to shrink energy demand worldwide. Oil traded at $38.67 a barrel as of 1 p.m. London time.

Prices have recovered from a four-year low of $32.40 reached on Dec. 19 amid fighting between Israel and Hamas, the dispute over gas exports between Russia and Ukraine, and below- normal winter temperatures in Europe. The support from these events will likely be “transient,” according to the report.

Goldman Sachs maintained its estimate that prices will rise to $65 a barrel at the end of the year, as supply restraint both inside and beyond the Organization of Petroleum Exporting Countries removes some excess crude from the market.

Goldman analysts anticipated oil prices in excess of $100 a barrel in March 2005, nearly three years before futures rose that high. Last year, the bank’s forecasters had less success. Until September, Goldman predicted oil would end 2008 at $149 a barrel, overshooting the actual price by more than $100.

Goldman estimates the average price of crude this year will be $45 a barrel, according to a Dec. 11 forecast. That’s joint third-lowest with Deutsche Bank AG among 33 analyst predictions compiled by Bloomberg.