Crude oil price may hit $200, says analyst

CRUDE OIL prices could surge to $200 a barrel in the next two years, according to the Goldman Sachs analyst who three years ago correctly predicted a price "super-spike" above $100 a barrel.

The warning by Arjun Murti came as oil prices hit a fresh record high above $122 a barrel, boosted by supply disruptions in Nigeria, lower output in Russia and continued robust demand in China ahead of the Olympics.

Royal Dutch Shell said a militant attack over the weekend damaged a flow-station in Nigeria, where violence has cut exports from Africa's biggest oil producer.

Economic growth in China, the world's second biggest fuel consumer, will be 10.8 per cent this quarter, State Information Centre economists wrote in the official China Securities Journal yesterday.

Mr Murti said the energy crisis could be coming to a head as a lack of adequate supply growth was becoming apparent.

"The possibility of $150-$200 per barrel seems increasingly likely over the next 6-24 months," he said, also warning that the spare capacity of the Organisation of Petroleum Exporting Countries (Opec) to cushion against unexpected supply shocks was very low.

Last month, Chakib Khelil, president of Opec, also warned oil could reach $200 a barrel. The number of oil-option contracts betting on oil hitting $200 a barrel in December have tripled since the beginning of the year.

Mr Murti's warnings carry weight in the oil market after he correctly predicted in March 2005 when oil traded at about $55 a barrel that prices could suffer a "super-spike" to $105 a barrel.

The warning in 2005 was criticised as "self-serving" because Goldman Sachs is one of the largest Wall Street investment banks trading oil and it could profit from an increase in prices.

In New York, West Texas Intermediate crude futures yesterday jumped to a record $122.49 a barrel while, in London, Brent crude futures rose to $120.96 a barrel.

The crude oil futures market signalled a growing belief that $100 a barrel is here to stay, with prices for oil to be delivered up to December 2016 trading above $110 a barrel.

Kevin Norrish, of Barclays Capital, said the market was undertaking a "recalibration higher of expectations for long-term equilibrium oil prices".

"The price keeps changing but not the reasons for the rally," said Adam Sieminski, Deutsche Bank's chief energy economist, in Washington.

"Until the fundamental supply and demand levers start to shift and the psychology changes we will continue to see new records."

"We will have to see stories of the economy in China, Asia, slowing to send prices lower. We haven't seen them yet, but at some point in the future we may. Then oil demand growth will slow."

Chinese oil consumption will climb 4.7 per cent to 7.89 million barrels a day this year, the International Energy Agency said on April 11th.

It said global demand will rise 1.5 per cent to 87.23 million barrels a day.

- (Financial Times service/Bloomberg)