LONDON: Oil rose more than $1 per barrel on Tuesday after Goldman Sachs raised its forecasts for North Sea Brent crude, citing strong fuel demand growth.
The US investment bank raised its year-end forecast for Brent to $120 per barrel from $105 and its 2012 forecast to $140 from $120, saying rising demand for fuel would draw global inventories and strain OPEC’s spare oil output capacity.
Brent crude for July was $1.69 higher at $111.79 a barrel by 1211 GMT. US crude was up $1.42 at $99.12.
Other analysts were also bullish on the outlook for oil prices longer term, but some pointed to short term pressures limiting much significant further strength in the near term.
"I see prices trading sideways for the next 2-3 months before jumping again in Q4," Simon Wardell, oil analyst at Global Insight, said.
"The forthcoming end of QE (quantitative easing) is taking some froth out of the commodity markets and there are some economic clouds around."
Stocks, bonds, gold and the euro are expected to fall in the three months after the end of the Fed’s second massive bond buying operation, also known as quantitative easing, or QE2, a Reuters poll of 64 analysts and fund managers found last week.
Goldman Sachs raised its 12-month price forecast for Brent to $130 a barrel from $107, and increased the end-2012 forecast to $140 a barrel from $120, citing global economic growth and tight OPEC spare capacity.
The bank, which in April had predicted the major correction in oil prices earlier this month, said on May 7 that oil could surpass its recent highs by 2012.
Echoing this view was Morgan Stanley, which raised its 2011 Brent crude forecast to $120 a barrel, from $100 previously, and lifted its 2012 target to $130, from $105.
The loss of around 1.5 million barrels per day of Libyan production, and firm demand from emerging economies, will lead to tighter inventories in the second half of the year, the bank’s analysts said in a report.
"It is very likely that OPEC will respond to tightening inventories by lifting their production; in response, we see flat prices moving higher as spare capacity continues its fall to untenable levels," the report said.
The Organization of the Petroleum Exporting Countries is scheduled to meet on June 8 in Vienna to discuss output.
An expected fall in US crude stocks figures for last week could also support prices, analysts said. A drop in imports and increased refinery use are forecast to have pushed crude oil inventories lower, according to a Reuters survey of analysts on Monday.
Data showed no let up in Chinese oil imports last month, which grew 9.6 percent year-on-year, its third-highest level ever, even as a purchasing managers index on Monday showed China’s factories expanding at their slowest pace in 10 months in May.
However despite the broadly supportive longer term outlook described by analysts, technical indicators painted a bearish picture for the crude price, Phil Roberts chief European technical strategist at Barclays Capital said.
"The (down) trend seems to have stalled but I think there’s another test to the downside to come before we bounce higher," he said, adding that the $90-$95 level is key, with the 200 DMA, currently at around $90.50, a key area of support.
