Goldman’s oracle of oil sees crude falling to $75, but after 20 years

Crude oil price may fall by nearly half to below $75 a barrel, but after 20 years, feels Goldman Sachs analyst Arjun N Murti who shot to fame as ‘oil guru’ for rightly predicting a sharp spike much in advance

Incidentally, it was Murti, an Indian-origin energy analyst at the global investment banking giant, who predicted last month that crude prices were heading towards a level of $150-200 a barrel in the next six months to two years.

Crude prices, which settled at $134.80 on Friday at the New York Mercantile Exchange has recently touched $140 mark.

While re-asserting his view that crude oil was likely to remain strong in the near future, Murti said in an interview with the American stock market weekly Barron’s that Goldman Sachs’ long-term forecast for 20 years was that the price could fall back to $75 a barrel. “We have always assumed that, at some point, you get a sustained drop in demand. Our long-term oil forecast looking out 20 years is to fall back to $75 a barrel, or some lower number,” Barron’s quoted Murti as saying. In a Goldman Sachs research note, Murti had written that the possibility of oil price rising to $150-200 per barrel level was increasingly likely over the next 6-24 month. According to Barron’s, it was a “controversial call” when crude was around $40 a barrel in 2004 and Murti predicted in a report “a potentially large upward spike in crude oil, natural gas and refining margins at some point this decade.” But the forecast was “right on the money” as four years later, crude is trading around 139, it said.

According to Goldman Sachs, energy is currently in the later stages of a ‘super spike’ cycle, where prices tend to rise to a point where demand starts falling down. Murti believes that prices should rise further due to constrained supply growth and strong global demand.

He, however, quashed off the suggestions about speculators driving up the oil prices. “Oil markets are driven by fundamentals. Our response to the notion that it is merely a bubble is that you are still seeing no supply growth. If the price isn’t real, where is the supply?” he said.