The Wall Street bank, seen as one of the most influential in commodity markets, said it was "structurally bullish" on oil and raised its year-end Brent forecast to $120 per barrel from $105 a barrel, and its 2012 forecast to $140 from $120.

Goldman's bullish tone comes just a month after the bank rocked markets in April by calling a nearly $20 fall in Brent, saying speculators had pushed prices ahead of fundamentals.

"It is only a matter of time until inventories and OPEC spare capacity will become effectively exhausted, requiring higher oil prices to restrain demand, keeping it in line with available supplies," Goldman analysts said in a report dated Monday.

"We expect that the ongoing loss of Libyan production and disappointing non-OPEC production will continue to tighten the oil market to critically tight levels in early 2012."

The bank said it estimates the level of effective full capacity in top oil exporter Saudi Arabia at between 10.5-11.0 million barrels per day (bpd), well below the 12.5 million bpd capacity figure given by the kingdom. That would leave Saudi with spare capacity of around 2 million to 2.5 million bpd, around half the 4 million bpd that Saudi states.

"We are differentiating between what is likely nameplate engineering capacity against what is most likely to be brought to market in a short period of time and sustained for a long period of time," Goldman said.

The routs in commodity prices this month provide a good entry point to buy oil, Goldman said, recommending going long on the December 2012 ICE Brent crude contract.

Morgan Stanley also raised its Brent crude price forecast for 2011 and 2012 on Tuesday, citing an improvement in demand coupled with a loss in production from Libya.

Morgan Stanley raised its 2011 Brent crude price forecast to $120 per barrel from $100 a barrel, and its 2012 forecast to $130 from $105.

SLOWER DEMAND GROWTH

Higher prices have started to eat into demand and would continue to do so, Goldman said.

The bank cut its forecast for global oil demand growth for 2011 to 1.7 million bpd on Monday from the previous forecast of 1.9 million bpd.

In a separate report dated Tuesday, the bank also changed its 2012 oil demand growth forecast to 1.7 million bpd, from 2.0 million previously, and its 2013 growth estimate to 1.3 million bpd, down from 1.6 million bpd.

METALS, CHINA

Goldman also said that the current pause in economic growth is nearing a trough and creating upside potential for metal prices.

"While a sharp decline in world economic growth remains a downside risk to commodity prices, we see the current slowdown in economic growth as part of a normal mid-cycle pause, partially driven by higher commodity prices, and therefore not a reason to expect commodity prices to decline substantially," the report said.

The bank said that current copper prices offer an attractive opportunity to buy the metal. It also said that the recent weak data from China raises "some caution and we recognise that China may experience some further economic weakness before comfortably resuming a growth trend."

Goldman trimmed its economic growth forecasts for China to 9.4 percent this year, from 10 percent previously, citing a recent run of surprisingly weak data, high oil prices and supply constraints.

"The growth slowdown has been even sharper than we forecast, especially evident in April industrial production," it said.

The bank said it expects gold prices to continue to climb in 2011 as the resumption of quantitative easing should keep real interest rates in the US low. It said it expects gold prices to peak in 2012.

Copyright Reuters, 2011