Goldman Analyst Expecting "Swift and Violent Rebound" In Crude Oil Prices

A commodity analysts at Goldman Sachs is expecting a "swift and violent rebound" in energy prices during the first half of this year, with prices expected to rise to $65 a barrel (see Bloomberg article). The analyst also believes that the strategy of using supertankers to store crude oil to take advantage of the contango trade (see previous post) is “near the end of this process,” believing that the contango will likely flatten as OPEC and other producers cuts supply, decreasing the availability of cheaper crude oil for immediate delivery. OPEC in particular is beginning another round of cutbacks, with cuts expected to fall somewhere between 3-4.2 million barrels a day, help to meet a goal of reducing production to under 25 million barrels a day. If OPEC is able to continue with planned cuts, current crude oil and gasoline prices should find a bottom and show some strength. Whether the move is sustained after any "violent" snap back will certainly depend on the health of the US economy later this year - in particular how the economy responds to the proposed stimulus plan, as well as how both inflation and the dollar react to additional borrow and spending/taxes. Given the size of the proposed stimulus plan, along with previous TARP spending, both inflation and a weaker dollar seem poised to help support higher crude oil prices over the next year.