Oil Trades Near 7-Month High After Rising on Goldman Forecast

June 5 (Bloomberg) -- Crude oil was little changed after rising to a seven-month high yesterday as Goldman Sachs Group Inc. said prices may reach $85 a barrel by the end of the year as demand recovers and supplies shrink.

Oil climbed more than 4 percent yesterday and gasoline surged after the bank increased its year-end forecast from $65 and withdrew a prediction that prices will dip prior to a rally. U.S. stocks rose for a fifth time in six days, outweighing a slump in retailers following disappointing May sales.

“If this trend continues where the market goes up, even on bad news and oil goes up with the market, then oil could easily hit $90 this year,” said Mike Sander, an investment adviser at Sander Capital Advisors Inc. in Seattle.

Crude oil for July delivery rose 4 cents to $68.85 a barrel on the New York Mercantile Exchange at 8:50 a.m. Yesterday, the contract rose $2.69, or 4.1 percent, to settle at $68.81, the highest settlement since Nov. 4. It was the biggest gain since May 18.

Gasoline for July delivery rose 6.05 cents, or 3.2 percent, to end the session at $1.9621 a gallon in New York. It was the highest settlement since Oct. 9.

The Standard & Poor’s 500 Index climbed 1.2 percent and the Dow Jones Industrial Average rose 0.9 percent. Retailers from Macy’s Inc. to Costco Wholesale Corp. dropped after sales in May tumbled as higher unemployment curtailed spending.

Lower Dollar

Oil posted its biggest monthly gain in a decade in May on speculation a global economic recovery will trigger a rebound in demand. A drop in the value of the dollar also drew investors to crude and other commodities as an alternative investment.

“As the financial crisis eases, an energy shortage lies ahead,” Goldman analysts Jeffrey Currie in London and David Greely in New York wrote in a research report e-mailed yesterday. The bank set a 12-month price target of $90 a barrel, up from $70, and introduced a forecast of $95 for the end of 2010.

Goldman’s New York-based energy equities research team, led by analyst Arjun Murti, in March 2005 correctly predicted a “super spike” in prices. In May last year, Murti said oil may rise to between $150 and $200 a barrel within two years. The team revised its forecast after prices then slumped from a record $147.27 in July.

Oil will probably climb to a year-end range of $70 to $75 a barrel, Organization of Petroleum Exporting Countries Secretary General Abdalla el-Badri said yesterday in London. Crude’s rally is being driven by a weaker dollar and optimism for an economic recovery, he said.

Energy Spending

Reduced spending on energy threatens to slow the economy, trigger a surge in prices and hurt future prosperity, the Group of Eight industrialized nations said in the concluding statement at a meeting in Rome on May 25. Oil companies’ spending this year dropped almost $100 billion, or 21 percent, according to a report last month from the International Energy Agency.

A government report yesterday showed that U.S. crude-oil inventories unexpectedly rose last week as fuel consumption dropped.

Crude-oil supplies climbed 2.9 million barrels to 366 million in the week ended May 29, according to the Energy Department. A 1.5 million-barrel decline was forecast in a Bloomberg News survey. The gain occurred as imports jumped 9.9 percent and refineries increased operating rates to the highest in six months. Fuel demand fell 900,000 barrels to 17.7 million barrels a day last week, the lowest since May 1999.

Brent crude for July delivery rose $2.83, or 4.3 percent, to end yesterday’s session at $68.71 a barrel on London’s ICE Futures Europe exchange. It was the highest settlement since Oct. 21.