Goldman sees massive upside risk in oil prices

Mon Jan 9, 2012 11:54am EST
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By Eric Onstad

LONDON (Reuters) - Oil, gold and base metals are Goldman Sachs' top commodity picks this year, with big upside risk in oil due to tight fundamentals and a potential Iranian conflict, the investment bank said on Monday.

Price increases in Brent crude already in the first weeks of the year mean Goldman's end-year target is only 13 percent away, but it is the commodity with the greatest potential to break above its target, Head of Commodities Research Jeff Currie said.

"Oil we like the most from a fundamental basis but at $113 a barrel in the current environment is pretty rich," he told a strategy conference in London.

Goldman expects Brent oil to end the year at $127.50 per barrel and trade at an average of $120 in 2012.

Gold and base metals have further to rise from current levels to Goldman's targets, but have scant potential above the targets.

"Oil on the other hand, given the current environment, tight fundamentals, the current geo-political situation in Iran, creates massive upside price risk relative to our target," Currie said.

He did not say how high oil could spike if an Iranian conflict broke out. Brent crude rose 13 percent last year.

Short of a conflict, an EU embargo on Iranian oil would likely to be neutral for the market because Chinese government reserves would likely absorb excess oil, Currie added.   Continued...