EMEA News
Rising Prices Will Spur, Not Hurt, Demand: Goldman
Contrary to the prevailing analytical view that rising crude prices are harmful to the global oil market, Goldman Sachs Group Inc. echoed the opinion of Saudi Arabia by stating that not only won't it curb demand, it will in fact spur demand as the monies are reinvested overseas and stimulate the global economy.
Jeff Currie, head of commodities research for Goldman, said, "Global demand growth is absolutely stellar; you'd have to get a really high price before you start to see it damage demand," and he added that "What we've seen over the last 15-plus years is that higher oil prices lead to creation of global excess savings - petrodollars," and that these get lent out and "stimulate demand growth."
Goldman forecast that Brent will climb to $82.50 this summer, and this combined with other rosy predictions for prices have helped commodity funds to attract inflows at the fastest pace since 2016: according to eVestment, investors allocated $3 billion to commodity-focused hedge funds from January through March, the most since the third quarter of 2016.
By contrast, last year they pulled $680 million from the strategy in the first net outflows since 2014.
The notion that crude prices will continue to rise is producing a host of reactions from different sources, such as Bijan Zanganeh, oil minister for Iran, who told media on Monday that "if oil prices continue to increase, there will be no need to extend the deal" - referring to the production output initiative undertaken by the Organization of the Petroleum Exporting Countries (OPEC), which ironically has provided a good deal of support to the crude market this year despite its questionable efficacy.
All but ignored in the focus on price trajectory is the relative health of the crude market, and on that score, Jean-Louis Le Mee, CEO of Westbeck, seemed to warn people to beware what they wish for when he wrote in his company's February investment letter that the "crunch year" for strong oil prices will actually be 2019, when the effects of five years of under-investment in new oil projects around the world have their full impact.
Last week Mike Wittner, head of oil market research at Societe Generale SA, also expressed concern about the health of the market by saying OPEC is "happy to see inventories continue to go down, to see prices of $70 or $80; in the end, it's about revenues, [and] the question is at what point do they become uncomfortable with higher prices?"
