Oil’s slide peters out; Goldman repeats $149 year-end target

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Oil market bulls aren’t giving up without a fight.

Crude futures fell as low as $112.61 a barrel early today after the government said U.S. oil inventories last week jumped 9.39 million barrels, to an 11-week high of 305.9 million -- another sign that there’s no shortage of supply.

But prices rebounded later in the session, and the September futures contract closed up 45 cents at $114.98 a barrel, the second straight gain. Oil hasn’t been up for two consecutive days since mid-July.

The market got a psychological boost from Goldman, Sachs & Co. after the brokerage’s commodities analysts reiterated their prediction that crude would rebound to $149 a barrel by the end of the year. (Let’s give them credit for being precise, but a prediction of $150 probably would have made the point, no?)

Also, some traders were noting that U.S. gasoline inventories slid for a fourth straight week to the lowest totals since November. Refineries have been operating at relatively low levels, necessitating a drawdown of gasoline stocks. But with the summer driving season ending that hasn’t been worrying the market much.

Even so, oil bulls have been trying to make a stand over the last eight sessions, after the barrel price plunged from a peak of $145.29 on July 3 to $115.10 by Aug. 8.

Is this the end of the slide? Market bears expect oil demand in the developed world to continue to weaken given the economy’s struggles, and they say that should put additional downward pressure on prices. So if there’s little or no upbeat news on the global economy in September, the path of least resistance for oil should be clear, said Stephen Schork, who writes the Schork Report on energy market trends from Villanova, Pa.

‘I think this is still a bear market,’ he said. ‘Demand is poor. . . . I think we’re going below $100.’

He said the rebound in crude prices today had a lot to do with technical trading. The September futures contract expired at the end of the session, and some traders who had been ‘short’ (betting on lower prices) may have been waiting to cover their positions, Schork said.

Also, the dollar’s recent rally has stalled out this week, which is helping commodities in general to recoup some ground. (The trade in recent weeks had been, sell commodities, buy the dollar.)

The bullish case for oil: Apart from the ever-present geopolitical threats to supplies, global fundamentals still favor a rebound in prices by year’s end, Goldman Sachs insists. The brokerage is betting that rising demand in the developing world (China, etc.) will trump weakness in the developed world.

Just as important, Goldman expects the market to soon refocus on the long-term supply picture.

‘The end of the oil bull market of the ’70s was caused by a sharp increase in supplies from large non-OPEC regions’ such as Mexico and Norway, the firm notes. This time, it says, ‘nothing similar is expected for several years.’