Thursday, June 23, 2011

JP Morgan, Goldman, cut oil price forecasts after IEA

(Reuters) - Bankers J.P. Morgan and Goldman Sachs slashed forecasts for crude prices in the third quarter after the International Energy Agency announced the release of 60 million barrels of oil next month to shore up the economic recovery.

J.P. Morgan cut its average forecast for Brent crude to $100 a barrel in the third quarter, down from its previous projection of $130. Goldman Sachs , one of the most influential banks in commodities, expects Brent prices to fall to $105-$107 a barrel by the end of July.

"If pursued rigorously, the 60 million-barrel sale over 30 days is a sufficient volume to cause a very substantial drop in the oil price," J.P. Morgan analysts led by Lawrence Eagles said in a note to clients late on Thursday.

Oil bounced back a dollar on Friday after tumbling to a four-month low in the previous session on news the world's top consumers planned to release emergency oil reserves for only the third time ever.

By 0111 GMT, Brent crude LCOc1 rose 84 cents to $108.10 a barrel, after settling at its lowest since February on Thursday. U.S. crude CLc1 gained $1.06 to $92.08 a barrel.

In a note to clients, Goldman's energy team, led by David Greely in New York, said, "We estimate that a 60 million barrel release by the end of July has the potential to reduce our three-month Brent crude oil price target by $10-$12 a barrel, to $105-$107 a barrel."

"We would expect the release to have less of an impact on prices further out the curve, as the oil would be absorbed to meet current demand. Net, we would expect that the potential impact on Brent crude oil prices in 2012 to be closer to $5-$7 a barrel on average."

The analyst team stopped short of an official price revision, saying they wanted to know whether the release would be through a direct sale of crude and oil products from IEA member countries or whether they would operate an exchange.

"We would expect that if the emergency release is implemented through an exchange program there will be less of an impact on crude oil prices for 2012 and beyond than if it is implemented through a direct sale, which would leave more uncertainty over when the government would choose to refill the SPR (U.S. Strategic Petroleum Reserve)," the note said.

J.P. Morgan analysts said the offer of strategic oil inventory "should be seen not only as a stop-gap due to insufficient global supply, but also as an injection of stimulus into the world economy, and result in a significant shift in world oil pricing dynamics in the third quarter".

J.P. Morgan said the new forecast was the same it had before the disruption to Libyan supplies.

"IEA countries have replaced OPEC as the supplier of the marginal barrel to the market, with significant pricing power conferred to the U.S. by virtue of its large contribution to the release pool," J.P. Morgan said.


Goldman rocked commodity markets in April when the long-term price bull suddenly turned cautious on the outlook, saying speculators had pushed prices ahead of fundamentals as Brent crested a post-2008 peak near $125 a barrel.

After oil prices fell in May, the bank again turned bullish and said the large correction provided a good buying opportunity, raising its year-end Brent forecast to $120 a barrel. Its current three-month forecast is $117 a barrel and its forecast for 2012 is $130 a barrel.

Goldman is a long-term bull on oil and has said the 2008 peak of more than $147 a barrel could be surpassed in the coming years.

Greely told Reuters on Wednesday that while a large production increase from Saudi Arabia could limit the size of any global stock draw in the second half of this year, they expected spare production capacity in OPEC to be "effectively exhausted" by rising demand in 2012.

The plan to tap U.S. emergency oil reserves had been under way for nearly two months, but President Barack Obama held off in order to consult with other consuming nations and key OPEC producers, an administration official told Reuters on Thursday. (Additional reporting by Alejandro Barbajosa and Manolo Serapio Jr in Singapore; Reporting by David Sheppard; Writing by Clarence Fernandez; Editing by Lisa Shumaker and Simon Webb)

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