In his most recent Viewpoint, Goldman Sachs Asset Management
Chairman Jim O'Neill gave somewhat of an oil price forecast for
2012 and beyond.
O'Neill, who earned a Ph.D. for "researching oil prices and
their consequences," said he uses the five-year forward oil price
as the "simple broad guide" for the equilibrium oil price, or the
price at which supply meets demand on a fundamental level.
For a few years now, O'Neill said five-year forward oil prices
suggest that long-term oil prices have settle around $80 to $100
per barrel, which is noticeably lower than spot oil prices and
the oil price forecast of many other experts.
On Friday, WTI oil settled at $109.77 per barrel and Brent oil
(shown on chart below) settled at $125.47 per barrel.
Source: Goldman Sachs Asset Management
O'Neill gave several reasons that could explain the $80 to
$100 per barrel equilibrium, and why oil prices may not rise much
On the demand side, data showed that OECD oil demand actually
fell in 2011. China, moreover, is "falling in love with a softer
future GDP growth."
On the supply side, China is continuing to explore alternative
sources of energy, including nuclear energy. In the U.S., natural
gas is emerging as an alternative energy source.
The U.S. is the largest oil consumer in the world and accounts
for over 20 percent of global demand and China is the second
largest oil consumer in the world.
"Having observed the beginnings of the stabilization of the
longer term price since late 2009, I find it a lot more difficult
to be as bullish as many others," said O'Neill.