Goldman Sach's top commodities analyst says oil price to stay over $30 for the next year

By David Litterick

THE price of oil will remain above $30 a barrel for the next 12 months and continue its volatile run, one of the industry's most respected analysts said yesterday.

Steve Strongin, Goldman Sachs' managing director of commodities research, said: "Prices are likely to average around $32 a barrel over the next 12 months and there is a 20pc probability that it will top $40."

But he argued that current high levels would not have the same crippling effect on Europe as the oil crisis of the 1970s. He said: "Then, the oil price was very high temporarily, but it had a very lasting effect on industry. This time in western Europe, less oil is used for industrial production as it becomes more efficient and more for transportation. The effect will be more diffuse across the economy, more consumer-driven, and more transient."

The situation today, he said, stemmed from November 1997, the last time, supply and demand were in balance. Since then, the Asian economic crisis saw demand plummet, which led to oversupply. This was followed by cuts in investment, then the recovery in Asia, which put the market into deficit. Mr Strongin said it would take 12 to 18 months before new drilling led to the production of significant new oil supplies.

Brent crude for October delivery slipped more than a dollar to $32.75 in London yesterday after a week of hovering around 10-year highs. The price fall was helped by profit-taking as the market took on board the likely effects of Opec's production of an extra 800,000 barrels a day from October.

But traders dismissed the likelihood that the price would dip to the $25 a barrel level the Saudi oil minister, Ali al-Naimi, said Opec would like to see. Robin Batchelor, an energy sector fund manager at Merrill Lynch, said with the winter approaching, there was no sign that prices or demand would fall.

He urged the Government to use petrol tax revenues to offer incentives to use alternative energy sources, as happens in countries such as Germany and the United States, and to develop solar energy and fuel cell technology. He said developing indigenous fuel supplies would be one way to prevent Europe being held to ransom by Opec.

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-- Carl Jenkins (Somewherepress@aol.com), September 13, 2000