Thursday, August 18, 2005
The Goldman Gurus Do It Again
Goldman ups U.S. long-term oil forecast to $60—Reuters.
One of the top news stories of the morning seems to be word that the Goldman Sachs oil gurus have raised their long-term U.S. price forecast for next year to $68 a barrel, up from $55, and determined that oil prices will stay above $60 for the next five years.
Crude oil prices are, of course, trading up in Europe on the Goldman call, the first rise in four days.
Back in March, readers will recall, Goldman did much the same thing, calling for “a ‘super spike’ period” for oil and noting that “Resilient demand has caused us to revise up our super-spike range to $50-$105 per bbl…” (See The Goldman Gurus: Two Years Too Late, April 1.)
That "super-spike" forecast came after Goldman had for years maintained an entirely consensus view of oil prices (in January, strategist Abbey Joseph Cohen had told Barron’s Roundtable “we’re pricing $28 a barrel oil into Goldman earnings estimates”) despite the fact that oil had hit $55 and refused, under any circumstances, to break below $40.
The day after the Goldman Gurus called for “$100 oil,” as the Street interpreted the ridiculously broad $50-$105 “super-spike” target range, oil hit $58 a barrel and then fell for seven straight weeks before touching bottom at $47.
In other words, the Goldman Gurus—in the grand tradition of Wall Street analysts everywhere—threw in the towel at precisely the wrong moment. Anybody who bought crude on their “super-spike” call stood to lose nearly 20% in seven short weeks.
And today we have, I believe, a similar situation.
Oil prices stubbornly refused to do anything else but keep rising since the May 20th post-Goldman “super-spike” bottom—up 30% from that low—and now appear to be at a high-end-of-the-range level. Thus, to me, Goldman’s newer, higher forecast looks once again to be marking a near-term peak.
I still believe the world is running short of oil; that oil companies need to spend far more on new exploration and development and far less on buying back their own shares than they’ve been doing; and that the remarkable complacency exhibited by most economists (until quite recently) towards the imbalance between oil supply and oil demand has been misplaced.
But when the Goldman Gurus make another headline-grabbing and largely irrelevant oil forecast after a 30% run, it’s more than likely that we’re in for another short-term correction.
This time the Goldman Gurus look to be about two months too late.
I Am Not Making This Up
The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.
Posted by Jeff Matthews at 8:29 AM