Um, a bit late to come to that realization, don’tcha think? From Barron’s (hat tip reader Michael):
That ‘’super spike” in oil prices that Goldman insisted would lift crude to $200 a barrel ….? ….It never really turned out to be that prescient: instead of the 50% jump in oil that Goldman anticipated back in May, when it made the call with crude trading at $132, the price of a barrel never got more than 11% higher. And has since, of course, lost fully two-thirds of that price in the intervening four months.
Now Goldman is left with the ignominy of summarily abandoning the investors who listen to its research calls… On Thursday, Goldman said it was ”closing” its recommendations for oil trades. Meaning that in a perilous time when the traders who pay attention to Goldman’s recommendations could use some guidance the most, Goldman has opted to give them the least. And some traders are furious about it, comparing the maneuver to then-strategist Abby Cohen’s decision to abandon her targets for equity indexes in the fall 2001, citing the uncertainties abounding in the market.
Goldman specifically talked about four trade recommendations it previously issued, and said clients shouldn’t put any stock in them any longer. One particular trade, a Nymex-WTI swap on the 2012 contract, issued in September, when crude already had declined to below $70, suggested that the contract would reflate to a range of $120 to $140. Obviously, that hasn’t happened.
The big losers, of course, would be anybody who continued to trade on Goldman’s recommendations. And the stocks of companies linked to those underlying commodities. Exploration and production names have had an awful go of it Thursday….But Goldman …? What did Goldman lose today? It’s worth noting that, for reasons unrelated to its oil trading call, Goldman shares dropped below their 1999 IPO price in Thursday’s trading.
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I definitely thought there was a little froth when oil went over $120 a barrel and kept climbing, but I never thought it would go back down to $50 a barrel. So let me issue a mea culpa. I never claimed to know what was driving the price of oil, but I did think there was some sort of long term supply-and-demand trend that had set oil over $90 a barrel forever. Of course, I never foresaw the unwind of the carry trade, which has also affected oil because of its relatively inverse relation to the dollar. Oh well. At least I didn’t gamble based on Goldman’s call. The sting is a little less when you only lose face and not money.
When the dollar breaks down sending oil prices up then we have a depression.
fwiw (commodity strategist/gurus, save for Fadel Gheit at OPCO, have lost all credibility)
“Oil prices could fall as low as $40 a barrel next spring as an overhang of new, efficient refineries come on line, an analyst at Deutsche Bank said Wednesday.
Calling it the “mega-bear” case for oil, analyst Paul Sankey said the combination of weak demand for gasoline and other products, coupled with the start-up of 2 million barrels a day of processing capacity at a new generation of refineries in India and China and expansion projects in the U.S. will combine to depress oil prices.
Sankey’s stance, while pessimistic, still anticipates slightly higher oil prices than the bank’s commodities analysts, who on Friday said that oil futures prices could fall further to $30 a barrel under their worst-case scenario.”
Oil prices are cyclical, due to the boom-bust investor mentality. They should not obscure the overriding trend, however, of exponentially rising prices due to depletion (and probably peaking as of 2008).
Based on planned megaproject deployment and assuming a recovery from 2010, I expect them to stay low throughout 2009 (50-70$), start rising in 2010 and spiraling upwards in 2011-12, culminating in Goldman Sach’s “superspike” (200$+) and sending the world economy into a dovetail again.
I upset analysts to lie, or be wrong. I’m much more upset about the falsified data that was submitted to the government, processed, and reprinted as gospel. Many people, companies, and countries relied on that data to price their goods and plan for the future. We’ve been unable to get accurate pricing on much of anything for 15 years, though, with commensurate damage to the real economy as a result.
Oil is troughing through deleveraging and demand step-down lows, and won’t stay at this level for an extended period of time. It may not break three digits for a space, though. And that ‘shoot $200′ was one of the most bogus speculative accelerators I’ve ever seen. It would be nice to know what GS’s positions in oil were at the time, no? Their fessin’ up didn’t get that far, though.
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YS:
I am uncomfortable whenever I am on the same side as Goldman with respect to anything. Oil likely just bottomed at $48 a barrel.
Recall the heated discussions, even gov’t hearings a few short months ago whether or not the oil price was a function of speculation? So, was it??
Sure looks like it to me.
My five cents worth.
Yes and speculated oil at 60$ bbl led directly to the economic slowdown and crash. “Peak oil”? Is that like the “peak coal” theories used to justify the high price of coal when it was the primary fuel for warmth for the masses?
Where’s CFTC?
I don’t know a lot about trading futures markets but I wonder how many companies tried to hedge on Goldmans call and the frothy oil market by locking into futures at high prices? Seems they might have been stuck with very large losses.
But Goldman wasn’t alone in putting out bullish calls on oil. Six months back Nobel winner Dr. Paul Krugman told us inn his Times column that what we were seeing was “The Oil Nonbubble.”
http://www.nytimes.com/2008/05/12/opinion/12krugman.html?_r=1
This column was not just dedicated to the seriousness of Goldman’s $200 oil prediction, but to criticizing anybody who would dare differ with that opinion. The hasn’t been any follow-up on the topic from Dr Krugman on the topic. (He’s been busy telling us why we have to pass that nasty Mr Paulson’s TARP bill.)
Good Stuff:
“I made a presentation a couple of years ago in Lausanne to an audience of high-level security experts at a seminar covering the subject of economic terrorism. This fascinating seminar covered the subject of the susceptibility of global markets and commerce to acts aimed at causing economic destruction, rather than physical destruction and death.
I pointed out that current levels of gearing and risk, and the concentration of risk in single points of failure, together mean that the only difference between “economic terrorists” and proprietary traders such as hedge funds is motive. The former would destroy a market deliberately: the latter by accident.
While the oil market survived the recent storm surge of money, the inevitability of future waves of speculative money sweeping into the market, mean that an oil market meltdown is an accident waiting to happen.
Chris Cook is a former director of the International Petroleum Exchange.”
Are the Jim Hamilton’s of the world still promoting the “free market” theory of commodity price setting ?
I am a no nothing but I sensed that oil at $146 was being caused by spec money rushing into all commodities and forming yet another bubble.
I watch commodities closely and when oil was nearing it’s peak there was extreme tension that could be felt.
Will I do it again? Damn right, but only when I feel the time has arrived. Read a lot, listen a lot, do nothing a lot, and especially listen to what your own senses are telling you. Don’t be afraid to be a contrarian. Don’t trade a lot, don’t regret missing a move, don’t be afraid to sit in cash or treasuries for months or years, but when you trade be certain your senses are sending you a strong message. Trading desks will tell you that what I recommend cannot be done…I call bs on that.
Perhaps I have simply been lucky? If so, I would rather be lucky than good, like Goldman.
Da Russophile: […] and sending the world economy into a dovetail again.
Alternatively, peak demand has occurred, and the certain future of super-efficient vehicles — which currently amounts to 1/2 of all oil consumption — will ensure a veritable flood of oil for quite some time to come.
About the only way I can see a "super spike" in the near future (~5 to 10 years) is if Saudi Arabia starts scrapping the pumps for their metal value, ripping the pipes from the ground, and using their refineries and tanker loading facilities for target practice.
Let me laugh: HA HA HA!
Gasoline today is at 76 cents per litre, and plummeting. A test of faith for the peak-oil nutcase Soothsayers of Inevtiable DOOOOOOMMMM, eh?
Just ordered:
http://www.amazon.com/Myth-Oil-Crisis-Overcoming-Geopolitics/dp/0313354790/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1227151856&sr=8-1
Burn the heretic!
What is happening in the market right now is simple supply and demand. It is not the dollar, not the economy and not the fundamentals.
A lot of money is leaving the market. That includes the stock market, commodity market and any other market. Amount of money goes down, prices fall. Amount of money goes up, prices rise. Oil, together with gold and other commodities, became a financial instrument. People that had no business buying oil, put billions into it. Finally, everyone got scared and they have been selling ever since.
I think Goldman should be ashamed and it is one of the firms that needs to be prosecuted for repeatedly messing with the market. They are always (the analysts) at the forefront of irrational exuberance and depression.
On the other hand, I have learned in life that people are a lot more stupid than they seem and maybe Goldman analysts are just as big idiots as the rest of them.