Goldman Predicts Oil Price Spike (GS)

Pointing to possible supply disruptions and to dwindling spare capacity, the head of the energy research group at Goldman Sachs Group Inc. (NYSE: GS) says there is an increasing likelihood that crude oil prices will spike in the coming months. In his words:

We believe that stronger-than-expected demand against limited inventory and scarce excess production capacity leaves the market vulnerable to price spikes in the near-to-medium term. Oil looks increasingly compelling from the long side both as an outright position and a hedge.

Goldman also recommends that investors by the July 2012 Brent contract. Citing Goldman’s research note, BusinessWeek notes:

Brent’s premium to West Texas Intermediate has “more room” to narrow to the bank’s twelve-month target of $4 a barrel, the report showed. The spread will decline as more pipeline and rail capacity becomes available to ship crude from the Cushing, Oklahoma, storage area to refineries along the U.S. Gulf Coast, according to the note.

The July 2012 contract settled at $119.79/barrel yesterday, and Goldman expects that price to rise until mid-summer before it begins to fall toward the WTI price in the second half of the year.