Goldman Boosts WTI-Brent Spread Forecast by $10

Goldman Sachs Group Inc. said global oil markets will remain “tight” this quarter because of surprisingly robust fuel demand in emerging economies.

Prices may exceed the bank’s forecasts, which for North Sea Brent futures are at $110 a barrel over the next three-to-six months, and at $105 in 12 months. For the U.S. benchmark, West Texas Intermediate, the bank projects a level of $102.50 in three months, $105 in six and $97 in 12 months. Brent traded near $118 today, and WTI close to $96.

“We expect the global market to remain tight throughout the first quarter, and the risks to our forecast have shifted to the upside over the past weeks,” Jeff Currie, the bank’s head of commodities research in New York, wrote in a report dated yesterday. “The recent rally has been driven by improving fundamentals rather than by an increasing risk premium.”

Rising global demand, coupled with disruptions in Canadian oil supply growth, a reduction in Saudi Arabian production and constraints on Iranian exports, are limiting world supplies, according to Goldman Sachs. Still, unless there are further output losses prices probably won’t repeat the surges of 2011 and 2012, the bank said.

China’s crude imports rose to the highest level in eight months in January as refineries boosted runs amid signs of an economic recovery. The nation bought 24.87 million metric tons of crude more than it exported last month, according to figures released on the website of the Beijing-based General Administration of Customs today.

The bank’s forecasts indicate that WTI’s discount to Brent will narrow to $5 a barrel in six months, compared with about $21 today.

Goldman Sachs maintained a recommendation to hold a long position in the S&P GSCI Brent Total Return Index, as the backwardated structure of Brent contracts rewards investors rolling a position in the grade from one month to the next. Backwardation signifies that short-term prices are more expensive than later deliveries.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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