Goldman Sachs forecast that oil prices are too cheap

Goldman Sachs forecast that oil prices are “significantly” below the level warranted by fundamentals, offering hedging opportunities for 2010 and 2011, hence is oil way too cheap?

Goldman Sachs said in a report on Monday that the balance between supply and demand will continue to tighten in the second half of 2010 as global economic growth boosts crude oil demand, returning inventories to more normal levels.

Goldman Sachs earlier this year recommended buying December 2010 WTI on the NYMEX at $77.75 a barrel. This contract was trading at $80.31 a barrel at 12:01pm. in Singapore, $1.40 higher than that for delivery in September 2010.

“We expect an average of $92 in 2011, so on a longer term horizon prices are too cheap, but not far too cheap. Crude oil prices face some resistance around $80 as although fundamentals are slowly improving they’re not yet strong enough.” said Hannes Loacker, an analyst at Raiffeisen Zentralbank Oesterreich AG in Vienna.

“Investors have become so short term that there is some holdback in investing in risky assets. Positive news today is gone tomorrow so there is no compelling reason for a convincing direction on oil prices.” said Serene Lim, a commodity strategist at Australia & New Zealand Banking Group Ltd. in Singapore.

Meanwhile, Citigroup have hired Rob Biro from Goldman Sachs to lead global oil trading in Singapore, the first US bank to base a worldwide trading head in the city, according to two people with knowledge of the appointment.

Singapore, the Asian hub for oil trading, is offering tax breaks and incentives to lure companies to boost their trading desks to the city.