Oil Prices Unlikely To Collapse Post Iraq War - Goldman

Source Tuesday March 25, 7:10 PM

SINGAPORE (Dow Jones)--Oil prices will likely remain higher for longer than is the consensus view, even if the war in Iraq is a "quick and clean" one, Goldman Sachs said in its latest research report.

Goldman said the oil market is experiencing a number of other shocks that are significant to help the prices to stay high.

Oil prices could overcorrect on the downside in the near term. However, after the resolution of the war, oil prices will likely stabilize in the mid-US$20 a barrel range, the report said.

If the war is not quick and clean, there is potential upside to the Brent crude oil forecast of US$26/bbl for 2003, it said.

Goldman said several dislocations other than Iraq are there in the oil market. They include Venezuela's lower production and Japan's closure of nuclear power plants.

Venezuela's production, around 2 million b/d, is 1.4 million b/d less than the pre-strike level, and Japan's closure of most of its nuclear plants has led to a 500,000 b/d increase in oil demand

In the meantime, the natural gas supply crisis in the U.S. has led to users switching from natural gas to oil products, adding 200,000 b/d of demand in 2003. The outbreak of civil unrest in Nigeria over the past week has caused the shut-in of more than 550,000 b/d of production.

The net impact of these shocks is very low inventories, which should support prices for some time, the report said.

-By Xu Yihe, Dow Jones Newswires; 65-6415-4068; yi-he.xu@dowjones.com

-Edited by George Bernard