Goldman’s $200 Oil Price Superspike Challenged
The prospect of $141-a barrel oil in the second half of this year and a $150-$200 superspike is looking increasingly realistic. But the Washington Post digs into the previous forecasts by Goldman Sachs analysts Arjun N. Murti and Jeffrey Currie and wonders whether they have been more lucky than good.
Certainly Barclays Capital commodities analysts Paul Horsnell and Kevin Norrish are not impressed:
For us, the whole circus concerning analysts mentioning ever higher round numbers has seemed a very hollow one indeed. It serves little purpose to start making me-too statements just to serve as a piece of analyst bling.
Some oil experts say the firm’s predictions were fulfilled only because of U.S. hurricanes and an output cut from the Organization of the Petroleum Exporting Countries a year and a half ago, the Post reports. ” They fault Goldman for underestimating future oil supplies and overestimating future demand for oil, especially with prices this high. Others wonder why Goldman anticipates a big price increase later this year when supplies seem adequate, even if it does expect scarce supplies years from now. Some say Goldman — which acts as an oil broker, runs the biggest commodity index fund, provides investment advice and trades oil on its own account — has too many institutional conflicts of interest.”
Goldman’s commodities analyst Currie stands by the forecast:
World GDP wants to grow at 3.8 percent, whereas the best we can come up with for trend supply growth is 1 percent. So something has to give. And that means prices have to rise to curtail demand growth.
Ed Morse, chief energy economist at Lehman Brothers, calls Currie’s analysis “responsible and analytically coherent,” but he doesn’t agree with it.
Currie is too pessimistic about future supplies and exploration costs, Morse says. Morse says that new deepwater drilling equipment will break the bottleneck slowing exploration of promising areas offshore Brazil, Alaska, Norway, West Africa and northwest Australia.
To some, Goldman’s series of rising price forecasts summons memories of the technology bubble in the late 1990s. Currie rejects the tech-bubble analogy. “When you look at an equity, its valuation is determined almost entirely by . . . expectations” of future earnings and cash flow, he said. “It is not grounded in today; it is grounded in tomorrow. So it’s very easy to get a very large speculative bubble.”
By contrast, he said, “commodities are physical assets where price has to clear supply and demand today.” During past speculative bubbles, such as those in Dutch tulips, commodities or U.S. housing, “people hoarded,” Currie added. “They had to stockpile and put things in inventory. We know that [oil] inventories are modest right now. We know that.”
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
June 27th, 2008 at 12:58 pm
[...] Goldman was responsible for the $200 Oil Price Spike forecast that helped fuel the oil price runup. Then Goldman analysts put the boot in on General [...]