Goldman Sachs' Bullishness on Oil Prices

Zero Hedge reports on Goldman Sachs' top ten trades for 2012, and this one caught my eye:

6. Long July 2012 ICE Brent Crude Oil futures for a target of $120/bbl (opened at $107/bbl) and a potential return of 12%, stop at $100/bbl

As the downside risk from the European debt crisis has intensified, so has the oil market’s incentive to draw down inventories ahead of the threatened global economic recession. In particular, in its attempt to price in the potential that the European debt crisis may trigger a new global economic recession, the oil market continues to set crude oil prices too low to clear the tight physical markets, leading oil inventories to reach exceptionally low levels for the time of year. In the first three quarters of 2011 (latest available data), OECD total petroleum inventories drew by 225,000 b/d more than normal. This implies that despite Brent crude oil prices, which averaged $111.50/bbl over the same time period, current demand still exceeded the available supply. We estimate that Bent crude oil prices would have needed to average $130/bbl to restrain demand in line with supply. Further, in the absence of the IEA coordinated release of 35.5 million barrels of government inventories this summer, Brent crude oil prices would likely have needed to average $140/bbl to keep demand in line with supply.

Of course, the market had ample inventory cover from 2011Q1-2011Q3, and so the market could balance by drawing inventories rather than restraining demand. However, with inventories now exceptionally tight outside of the US, and US inventories drawing rapidly, we believe that this draw on oil inventories cannot be sustained and oil demand must be restrained either through the feared sharp decline in world economic growth, or higher crude oil prices.

Consequently, while the downside risk from the European debt crisis has increased, the upside risk to oil prices has also increased as the low level of inventories and currently tight supply-demand balance is leaving the oil market exceptionally vulnerable to supply disappointments or better-than-expected demand. Interestingly, while the oil market has spent much of 2011H2 drawing parallels to 2008H2, the more relevant parallel may prove to be between 2011H2 and 2007H2, when extremely tight physical markets set the stage for crude oil prices to rise by almost 50% in 2008H1 to a record high over $145/bbl even though the US economy had fallen into recession, much as we think the European economy is doing now

I made the following graph of the days of supply in OECD private stocks (stocks divided by consumption):

The EIA data goes through July and the IEA gets us one more month.  I'm struggling to see Goldman's argument that stocks are at "exceptionally low levels" relative to history.  Anyone want to help out in comments?

I also note that there's a flaw in this analogy:

the more relevant parallel may prove to be between 2011H2 and 2007H2, when extremely tight physical markets set the stage for crude oil prices to rise by almost 50% in 2008H1 to a record high over $145/bbl even though the US economy had fallen into recession, much as we think the European economy is doing now.  

If we look at the price history:

In 2007 H2 prices had been rising steadily all year.  In 2011 they've been slowly falling since March.

Right now I find their arguments unpersuasive.