Oil Bull Goldman Slashes Forecast for Crude Prices « naked capitalism

Wednesday, September 17, 2008

Oil Bull Goldman Slashes Forecast for Crude Prices

While Goldman, the firm that called for a “super spike” of oil prices this year to $150-$200 a barrel, has now reduced its forecast considerably, it still calls for oil prices significantly above their current level ($92 for Brent as of this writing) before year end.

From Bloomberg:

Goldman Sachs Group Inc. slashed its forecast for crude oil prices in New York as concerns the global credit crisis may lead to weaker demand outweigh supply constraints.

The most profitable U.S. securities firm cut its three-month benchmark West Texas Intermediate crude oil estimate to $115 a barrel from $149, and its six-month target to $125 from $142. Still, it said the crude market was “substantially oversold” and current prices present “compelling buying opportunities.”

“We will stand by our bullish view on oil but just think it will now take longer to get to our previous price targets,” Goldman analysts, led by Jeffrey Currie, said in a Sept. 16 report. “The supply side of the market still remains severely constrained.”…

Goldman lowered its 2009 average oil price forecast to $123 a barrel from $148. Until now, Goldman had the highest WTI forecasts for 2009 among 35 analysts’ estimates compiled by Bloomberg.

However, the analysts gave themselves a huge out:

Oil could fall as low as $75 a barrel should a global recession take place, and could jump as much as $15 above Goldman’s targets because of shortages after plants restart from hurricane shutdowns, the securities firm said.

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4 Comments:

ndk says:

September 17, 2008 at 10:05 am

I guess I side with Goldman in this analysis although I’ve been proven brutally wrong over the last couple months. I still view the price actions of basically this entire year, up and down, as being driven primarily by trading activity. The roller coaster ride has been incredible.

That view is much less strongly held after discovering that much of the data underpinning may have been falsified. Ugh.

The one point I (might) disagree with them is that I think further credit market mayhem could have unpredictable results on the price of crude. We still import very large amounts of it, among other components of our current account deficit. Producers are facing a wide variety of economic pressures, especially Russia. The tight oil market and dollar could yet teeter in all kinds of wacky directions, and I’m definitely not comfortable predicting which is most likely.

Matthew Dubuque says:

September 17, 2008 at 12:28 pm

Matthew Dubuque

This is consistent with an absolute collapse in global consumer demand accompanying the absolute liquidation of the world’s financial system.

Keep your eye on the latest nuclear implosion, Russia. Markets closed their for SECOND day in a row.

Recall the contagion from Russia in 1998.

Matt Dubuque

Freude Bud says:

September 17, 2008 at 5:03 pm

There are plenty of supply issues that would seem to fit a higher price prediction:

The only thing Wall Street consensus got right re: stocks ending 9/12–more or less–was gasoline, which drew down 3.3 mb as opposed to the expected 3.6. There was a 6.3 mb draw on crude vs. the expected 3.7 mb and an 0.9 mb distillate draw vs the expected 1.7 mb draw.

Nearly all oil production from the Gulf was shut in.

In Russia it appears that the price of oil has fallen so low that you cannot extract, transport, sell, and pay taxes and still make a profit. (as per UBS)

In Nigeria MEND’s “Operation Barbarossa Hurricane” appears to be getting into full swing.

Angola has said that they will cut crude exports by 10% in November.

But,

22% of US refining capacity was shut down for Hurricanes Gustav and Ike.

The SPR has taken an active role and seems to be making as much crude oil available as folks might want.

A credit crunch makes for fewer buyers.

America’s financial industry going into free fall is not good news for oil producers. Demand in the US–the largest buyer, but the most wasteful buyer–was already heading south.

Perhaps that is why the OPEC governors in Libya and Iran recently told reporters that the current situation did not require an emergency meeting of OPEC. (Or maybe they didn’t understand the import of the question.)

But,

Commodities got to appear an attractive asset class with 3 mos yielding 0.06%. Gold up $70 per Jesse’s Cafe Americain.

All told, predicting the price of oil is a fool’s game.

Still I’d bet on the low end of GS’s caveat emptor bit at the end.

Alex says:

September 17, 2008 at 8:24 pm

I always figured Goldman’s $200 call was just a signal that they were trying to set up a good entry point to reverse their long positions.

In retrospect, perhaps the the early stages of the price rise last year could be ascribed to Peak Oil, but when investors were pouring into commodities, and oil was rising $3 a day, and it was all over every magazine cover and Goldman was saying “buy” and J6P was saying “Oh my god, gas is going to hit $10,” how much more obvious can a sell signal be?

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