Wall Street oil analysts have given up calling for lower prices after missing the rallies of the past four years.

Wall Street oil analysts have given up calling for lower prices after missing the rallies of the past four years.

New York oil futures will average $ 60 a barrel in the first quarter of 2006, about $ 2 more than today, according to the median forecast of 25 analysts surveyed by Bloomberg. Prices will average $ 58 in all of 2006, the survey shows.

“Next year, we are going to see the continuation of a very tight market, vulnerable to supply shocks and disruption,” said Kevin Norrish, a director of commodities research for Barclays Capital in London. Norrish and colleague Paul Horsnell had the highest and most accurate forecast for prices last year.

Oil averaged $ 56.67 this year, $ 15 more than in 2004 and the highest in two decades of New York trading. Crude touched a record $ 70.85 in 2005, hurting consumer spending and sparking record oil-industry profits.

Credit Suisse First Boston analysts say Exxon Mobil Corp., BP Plc, Royal Dutch Shell Plc, Chevron Corp. and Total SA this year will probably earn $ 108 billion, the size of Venezuela’s economy.

Oil futures have more than tripled since November 2001 as fuel demand rose, especially in China, the second-largest energy consumer. The Iraq War and civil unrest in Venezuela and Nigeria have contributed to high prices.

Bad Calls

Oil analysts got it wrong this year, predicting that prices would average $ 40.33 in 2005. Wall Street had forecast that oil would be $ 26.81 during 2004, the December 2003 survey showed. Instead, crude in New York averaged $ 41.40 in 2004.

“The dynamic shifted this year,” said Doug Leggate, senior oil analyst at Citigroup Inc. in New York. “There was a growing perception that supply was running out. The doomsday scenario that stated OPEC couldn’t meet demand and the Saudis wouldn’t be able to increase output gained traction.”

Matthew Simmons, chairman of Houston-based energy investment bank Simmons & Co., wrote in “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy” that about 90 percent of Saudi Arabia’s oil output comes from seven fields, including three that have pumped for more than 50 years. Some fields are expected to rapidly decline with few replacement sources, he said.

Goldman Sachs Group Inc. analyst Arjun Murti in New York, who roiled oil markets in March by saying crude may reach $ 105 a barrel, said in a report on Dec. 12 that his forecast may be conservative if the “peak oil” theory is right. He forecasts oil of $ 50 to $ 105 a barrel until 2009.

Wall Street Profits

Wall Street companies have beefed up their energy-trading desks to benefit from high oil prices.

Goldman Sachs last week said net revenue from trading bonds, currencies and commodities climbed 16 percent this year to $ 8.48 billion. Revenue from commodities was “strong,” according to the company, which doesn’t give a more detailed breakdown of the results.

Morgan Stanley, the second-biggest U.S. securities firm by market value, increased its bets in commodities by 53 percent in its fiscal fourth quarter, faster than in any other market, as natural gas and electricity prices rose. The firm’s so-called value at risk, used by accountants to measure potential losses, in commodities averaged $ 46 million a day in the three months ending Nov. 30. In bonds the total was $ 53 million.

Neal Shear, who in April moved from running Morgan Stanley’s commodities unit to become co-head of institutional sales and trading, got a $ 16 million year-end bonus, according to a company filing.

Global Demand

Global oil demand will increase by 1.79 million barrels a day in 2006, according to the International Energy Agency. Consumption rose 1.1 million barrels, or 1.3 percent, this year, the agency said this month. Demand accelerated 3.8 percent in 2004, the fastest since 1976.

“The issue is you had exceptional demand growth in 2004 and it continued in 2005, crimping refining capacity further,” said Craig Pennington, the head energy analyst at Schroders Plc in London.

Not everyone agrees prices are heading higher, especially after demand peaks during the Northern Hemisphere winter.

“As we move through the winter, prices will fall below $ 50 and prices could average in the $ 40s in 2006,” said Richard Savage, head of global commodities research at Bank of America in London. “Investors think prices will stabilize and that will dampen enthusiasm.”

The median oil price forecast for Brent crude oil, which is traded on the London-based ICE Futures exchange, is $ 58 for the first quarter and $ 56.07 for 2006, according to the survey.

Pickens’s View

“We think the first half of the year is going to be somewhat slow, pick up later in the year and in the fourth quarter we’ll be back up to levels like we are now,” said Boone Pickens, a former oil executive and now a hedge fund manager.

The Organization of Petroleum Exporting Countries agreed on Dec. 12 to keep output quotas unchanged at 28 million barrels a day and to withdraw a previous offer to use as much of its 2 million barrels a day of spare capacity as needed. The extra barrels were made available after Hurricanes Katrina and Rita struck the U.S.

“OPEC always had control on the downside because it is relatively easy to cut production,” Leggate said. “OPEC lost control on the upside this year because they didn’t have enough spare capacity.”

OPEC will have to pump 28.5 million barrels a day in 2006 to meet demand, the IEA said on Dec. 13, up 200,000 a day from a month earlier.

Source : www.bloomberg.com