Goldman Sachs tips oil to hit $130 in 12 months

SINGAPORE: Oil prices will likely rise to about $130 a barrel in the next 12 months as demand in emerging markets such as China and India make up for weak developed world growth, Goldman Sachs said Thursday.

Despite concerns about the US economy and eurozone sovereign debt, which have hit crude prices due to an expected fall in demand, the Wall Street giant forecast commodity prices to remain buoyant.

At the same time it tipped gold -- a safe haven in times of economic uncertainty -- to cost $1,860 an ounce in a year, much lower than the record high of $1,921.15 it hit last month.

The large emerging economies of the BRICS -- Brazil, Russia, India, China and South Africa -- are forecast to grow 7.7 percent this year and 7.9 percent in 2012.

By contrast, advanced economies are projected to expand only 1.7 percent this year and 2.1 percent next year, Goldman Sachs said.

Brent crude, which is traded in London, is expected to hit $130 a barrel in the next year, from current levels around $112, the bank said.

West Texas Intermediate (WTI) light sweet crude oil, traded on the New York Mercantile Exchange, is forecast to reach $126.50 a barrel over the same period from current $88.

Both contracts touched all-time highs of above $147 a barrel in July 2008 before the onset of a global financial crisis.

"Clearly, there is very little growth anticipated to come from the US, EU and the developed markets," said Allison Nathan, senior commodities economist at Goldman Sachs.

"But we expect quite robust emerging market demand growth with China still anticipated to grow at 9.2 percent next year and overall the BRICS countries close to eight percent," she told reporters in Singapore.

Nathan said the spread between WTI crude and Brent should narrow in the future but it was still unclear when the gap will close.

The high inventory level at the US oil hub in Cushing, Oklahoma has led to WTI trading at a significant discount compared with other light sweet crudes such as Brent, Goldman Sachs said.

It added that transportation pipelines must be upgraded to improve delivery.

"While we expect that alternative transportation capacity such as rail, truck and barge shipments will expand rapidly over the coming months, we believe that WTI will remain volatile and prone to dislocations in the future until the pipeline infrastructure is improved," it said.

For gold, the US bank said an environment of low interest rates and central bank buying will support prices for the precious metal.

Low interest rates drive investors to buy gold for higher returns, boosting prices.

Copyright AFP (Agence France-Presse), 2011