Goldman on Oil...

[GRG55]

Wanna bet that Goldman have put the short US$/long Oil trade back on? Is there another Wall St house that is better at talking their book than these folks?

Get the feeling "something" is about to happen (recalling EJ's "I just know" comment in reference to the gold price)??

Goldman reiterates $149/bbl end-2008 oil forecast
Wed Aug 20, 2008 7:27am EDT
LONDON, Aug 20 (Reuters) - Goldman Sachs reiterated on Wednesday its year-end price forecast of $149 a barrel for U.S. crude oil, and said strong fundamentals were a more important factor than a strengthening dollar...

...Earlier this year, Goldman Sachs equity analyst Arjun Murti predicted oil prices would spike to between $150-$200 before the end of 2009 due to his view of rising global demand and faltering supply.

"Although the recent correlation in dollar and oil prices is clear, it is important to emphasise that each of these assets are driven by multiple, varying factors ... Put differently, there is more to oil than the U.S. dollar and vice versa," the Goldman Sachs energy team said in the note...
More...

[Slimprofits]

Re: Goldman on Oil...

The investment bank sees the oil market being supported in the short-term by limited OECD oil stocks, a possible recovery in U.S. oil demand, near 10 percent growth in Chinese oil demand year-on-year in July and a drop in non-OPEC production.

Only one that is not realistic is a recovery in U.S. oil demand. Which brings me to a question that perhaps you know the answer to.

Have bets on U.S. consumer demand during the winter months for natural gas, propane and heating oil already been factored in to the price of futures?

[Slimprofits]

Re: Goldman on Oil...

Goldman Sachs said that despite the recent negative correlation between the U.S. dollar and oil prices, there was "very little correlation between oil prices and the U.S. dollar over the longer term".

Got your hip boots? Goldman is full of it. Obviously, the ultimate insider's firm, but still full of it. They are laughing at us running around like proverbial chickens with our heads cut off trying to make sense out of all of this nonsense.

On the same day last week (08/15) that the shitty second quarter European GDP numbers were announced, this was the other big news:

Goldman Sachs declared that the dollar has bottomed, noting "a clear technical break in many dollar crosses" as well as the overseas weakness and oil prices turning much lower.

source

[GRG55]

Re: Goldman on Oil...

Only one that is not realistic is a recovery in U.S. oil demand. Which brings me to a question that perhaps you know the answer to.

Have bets on U.S. consumer demand during the winter months for natural gas, propane and heating oil already been factored in to the price of futures?

No idea whether winter demand expectations have been factored into prices. So much depends on weather expectations that I don't know how anybody could determine such a thing with any confidence.

I don't follow heating oil or propane very closely, but the natural gas futures curve is pretty well flat with expectations of winter '08/'09 prices in the $9.00 range, for whatever that is worth.

My view is that at prices sub-$8.00 the pace of drilling for nat gas, already falling, will decline more precipitously. Any continued strength in the US$ (if that happens) will mean that pattern will not be restricted to Canada, as it was in the 2006 cycle. Under these circumstances natural gas supply will fall fairly quickly, as it is essentially a "just-in-time" energy supply. Depending on weather that means we could exit this coming winter with lower than usual nat gas inventories, and a moribund industry.

As for recovery in US oil demand, a sharp recession and contraction of economic activity would lead to an expectation of equally curtailed energy usage. However, I am no so sure this is going to be nearly as severe in terms of real economic output as many pundits are predicting. What if the USA instead experiences a very long, slow, grinding multi-year "recession" where growth is sub-par but not contracting sharply. What if the majority of this recession is felt in sectors of the economy that are not high energy consumers; banking for instance. The falling US$ will continue to support real output, and the repeated US Government "stoking" of the economy through handouts and give-aways means energy consumption (whether for transport or home heating) will continue to be subsidized, just like the cash handouts earlier this year were partly directed to consumption of necessities like gasoline.

It's easy to knock 10% off your personal driving; slightly more difficult to knock off the next 10%, and progressively harder (especially if you have to commute and don't have access to good public transit) to keep cutting it at the rate we've seen recently. Some iTulipers have suggested the type of energy consumption decline seen in the late 1970s to mid-'80s could be repeated. Possible I suppose. But let's remember that we are not starting this cycle driving a fleet of big block, 4-barrel Ford Torinos and Country Squires, as we were back then. Today's "large" engines are far more energy efficient than the engines of the 1970s. New technology (like hybrids) are expensive to purchase. How many can afford that sort of upgrade in a slow growth economy with credit contracting and the threat of unemployment hanging on for years? I suspect we'll see a lot more people keep their existing cars for much, much longer than "normal".

Edit added for Jim Nickerson: What's the actionable investment potential in this post? 1) Watch nat gas inventories and drilling activity, as there is the potential for setting up the next up-cycle if present trends continue. 2) Could be the companies supplying replacement auto parts will do rather well with an aging fleet being kept in service longer than "normal". However, in both instances, would seem the bear market in stocks needs to work off first before dipping a toe into either of these ideas.

[metalman]

Re: Goldman on Oil...

But let's remember that we are not starting this cycle driving a fleet of big block, 4-barrel Ford Torinos and Country Squires, as we were back then. Today's "large" engines are far more energy efficient than the engines of the 1970s. New technology (like hybrids) are expensive to purchase. How many can afford that sort of upgrade in a slow growth economy with credit contracting and the threat of unemployment hanging on for years? I suspect we'll see a lot more people keep their existing cars for much, much longer than "normal".

plus cars last forever now if you take half decent care of them. my friend ran his acura for 250k miles, no problems, and he beat it like a dog. it finally dies when the timing belt broke at hiway speeds... he'd never changed it!

[GRG55]

Re: Goldman on Oil...

plus cars last forever now if you take half decent care of them. my friend ran his acura for 250k miles, no problems, and he beat it like a dog. it finally dies when the timing belt broke at hiway speeds... he'd never changed it!

Good point. I ran an early '80s Volvo GLT sedan more than 450k kms before giving it away to friends son to drive to college [he ran it another 5 years]. Your friend's Acura probably had an interference fit engine, and when the timing belt failed the pistons drove into the valves, breaking or bending them. If the rest of the car was still servicable I would have scrounged a rebuildable engine at a wreaking yard and kept the thing going. But then I am a bit weird when it comes to my personal transportation...

[Guest]

Re: Goldman on Oil...

Wanna bet that Goldman have put the short US$/long Oil trade back on? Is there another Wall St house that is better at talking their book than these folks? ... Earlier this year, Goldman Sachs equity analyst Arjun Murti predicted oil prices would spike to between $150-$200 before the end of 2009 ...

GRG55 - I wager Goldman's call is dead on correct. We drift down into the spring of 2009 in the oil price, then the last three quarters of '09 see the most shocking price rise of this entire bull market. The oil price "pegs out" at the very top end of Goldman's call ($200) within less than 18 months! Then we head out towards $400. Very recent heads up from one of our posters, who explicitly requested anonymity. So we should just call it "rumor" or "scuttlebutt" and lets watch to see what develops. I don't own any oil stocks right now but they are looking like one of the most profoundly conservative investments for the next 18 months. Those here concluding that "we are in a global recession therefore oil consumption must collapse, or at very least remain very weak" may well be learning the *large* extent of their misconceptions, in the next eighteen months to two years.

I also will wager the precious metals start to dive big time later today, tomorrow and into next week. We are headed for another "toboggan run".

[FRED]

Re: Goldman on Oil...

GRG55 - I wager Goldman's call is dead on correct. We drift down into the spring of 2009 in the oil price, then the last three quarters of '09 see the most shocking price rise of this entire bull market. The oil price "pegs out" at the very top end of Goldman's call ($200) within less than 18 months! Then we head out towards $400. Very recent heads up from one of our posters, who explicitly requested anonymity. So we should just call it "rumor" or "scuttlebutt" and lets watch to see what develops. I don't own any oil stocks right now but they are looking like one of the most profoundly conservative investments for the next 18 months. Those here concluding that "we are in a global recession therefore oil consumption must collapse, or at very least remain very weak" may well be learning the *large* extent of their misconceptions, in the next eighteen months to two years.

I also will wager the precious metals start to dive big time later today, tomorrow and into next week. We are headed for another "toboggan run".

Or they are betting production won't collapse even faster than demand.

[phirang]

Re: Goldman on Oil...

Or they are betting production won't collapse even faster than demand.

Well, production is also a function of demand, and so it's not strictly determined by capacity...

[jimmygu3]

Re: Goldman on Oil...

Good point. I ran an early '80s Volvo GLT sedan more than 450k kms before giving it away to friends son to drive to college [he ran it another 5 years]. Your friend's Acura probably had an interference fit engine, and when the timing belt failed the pistons drove into the valves, breaking or bending them. If the rest of the car was still servicable I would have scrounged a rebuildable engine at a wreaking yard and kept the thing going. But then I am a bit weird when it comes to my personal transportation...

Sorry for continuing the off-topic discussion. I know guys who buy "totalled" Hondas & Acuras for $500 and replace the head gasket, drop in a used engine or tranny, or whatever the job requires, then sell the car for a profit. I bet that Acura your friend had is still on the road! FYI, Hondas now have "non-interference" engines, so the timing belt isn't the time bomb it once was.

[jk]

Re: Goldman on Oil...

I also will wager the precious metals start to dive big time later today, tomorrow and into next week. We are headed for another "toboggan run".

care to tell us the basis for this bold short-term prediction, lukester? or are you going all mystical like ej?

[metalman]

Re: Goldman on Oil...

care to tell us the basis for this bold short-term prediction, lukester? or are you going all mystical like ej?

i'd like to hear a clarification of ej's 'mystical' explanation. i don't buy it.