Goldman Sachs Economist: Oil Prices will Decline in the Next Months

Goldman Sachs economist, Mr. Jim O’Neill says that oil prices will decline in the coming months as Iran related worries fade. O’Neill is also the economist who coined the term “BRIC” 10 years ago. The abbreviation stands for Brazil, Russia, India and China.

Mr. O’Neill was recently in the Gulf and he took the chance to evaluate the oil market’s status in the long run. Oil market investment news has been filled with worries caused by the tension surrounding the nuclear program of Iran.

Upon his return from the trip, he told the National that he returned to thinking that a pre-emptive strike on Iran is not logical for anybody, including Israel. For this reason, he said that between the present time and the summer season, it is likely that whatever existing market premium caused by the issue will decrease or be totally removed.

O’ Neill said that five-year indicators for crude supply and demand show oil prices should fall between $80 and $100 per barrel. Because of this, he was led to think that all premiums beyond that range were caused by other market factors, aside from Iran uncertainty, and the possible results of QE3 in the United States.

Brent crude prices recently reached $127 a barrel. That level of oil investment was close to its highest in three years and was caused by concerns on the economic impact resulting from the further deterioration of the relationship between Iran and the United States.

Strict US sanctions caused Tehran to retaliate and threaten to block the Hormuz Strait, the major waterway of oil exports in the Persian Gulf.

Aside from thinking that it is not logical to go to war with Iran, O’ Neill says that he thinks that the Fed is moving away from QE3. These two reasons lead the economist to warn that the crude oil price chart will stay at its high level.

In case oil prices fall to $80 per barrel, it may lead worries in many Middle Eastern nations, as they had allocated high amounts of public spending based on oil prices that are more than $100, the norm last year.

Mr O’ Neill as Goldman Sachs Asset Management global chairman says that he has not seen any huge capital inflows to the region from investors all over the globe in spite of the recent spike in equity markets.