Goldman U-turn fuels surge in oil prices

Only weeks after calling the top of the oil market and advising clients to sell up, Goldman Sachs has performed a dramatic U-turn, pushing the price up to $112.10 a barrel in London yesterday.

Goldman, the world's largest commodity trader, has been known for making bold predictions on the price of oil and occasionally getting its fingers burnt in the process.

A month ago, it warned customers to sell oil, blaming record levels of speculative trading for driving up the price. Yet Goldman put out a research note yesterday raising its oil price forecasts, blaming the loss of oil production from Libya and disappointing levels of production outside the oil producing cartel Opec.

Jeffrey Currie, the global head of commodities strategy at Goldman said these factors would "continue to tighten the oil market to critical levels in early 2012" prompting Goldman to raise its forecasts.

Brent crude will hit $120 by the end of the year, it forecast, up from previous expectations of $105. By the end of next year, the investment bank believes a barrel of oil will be worth as much as $140, up from $120.

The oil price has dropped from a 30-month high of $115 at the beginning of the month, but the crisis in Libya has brought the country's 1.6 million-barrel-a-day production almost to a complete standstill.

Goldman's report said: "It's only a matter of time until inventories and Opec spare capacity will become effectively exhausted, requiring higher oil prices to restrain demand."

This is not the first time the group has rapidly reversed its predictions for the price of oil. Shortly after US light crude passed $123, two years ago this month, its energy strategist predicted a price of $200 within two years. Arjun Murti said the demand for oil led by China would lead to a "super-spike" in the price. Yet the strategist was left with a red face only seven months later, when he slashed the forecast to $45, blaming "incredibly weak demand".