THE Goldman Sachs Thread (merged)

[seldom_seen]

Two words: volatility.

Ok that's just one word, yet oil is the single most important commodity of industrial civilization. A civilization predicated on stability, predictability and control. When oil prices bust out of their cage and start running in all different directions like a chimpanzee on angel dust. It's not a good sign.

Oil may go down to 40 and be up at 90 within the next six months?
That's an economical earthquake.

[NEOPO]

AUGUST 2005 - ENERGY 77.51%

Thats 10% in 16 months.
I am having a hard time finding anything earlier then 2005.
This is the same place that holds Cheney's money in Vangaurd funds.

[Micki]

The topic is also discussed here:
G/S reweighting result of PO(?)
That thread is based on an article suggesting that the reweighting is the result of dropping production.
It does have a link to GS page where you can find out more.

[Dreamtwister]

If the big players like G&S suspected that there were a "significant number" of contracts that would not be delivered over the next... let's say 2 years, wouldn't that be a good reason to bail before those contracts were violated?

I know *I* wouldn't want to be stuck holding a worthless piece of paper come the delivery date. If I had reason to believe there would be no delivery, I'd be reducing my energy holdings as fast as humanly possible.

Just a thought.

[Dreamtwister]

Blatant crosspost to follow:

If the big players like G&S suspected that there were a "significant number" of contracts that would not be delivered over the next... let's say 2 years, wouldn't that be a good reason to bail before those contracts were violated?

I know *I* wouldn't want to be stuck holding a worthless piece of paper come the delivery date. If I had reason to believe there would be no delivery, I'd be reducing my energy holdings as fast as humanly possible.

Just a thought.

[coyote]

Two words: volatility.

I agree. We knew this was gonna happen. It's just been rather slow and majestic to start with. Think it'll speed up?

[MrBill]

Blatant crosspost to follow:

If the big players like G&S suspected that there were a "significant number" of contracts that would not be delivered over the next... let's say 2 years, wouldn't that be a good reason to bail before those contracts were violated?

I know *I* wouldn't want to be stuck holding a worthless piece of paper come the delivery date. If I had reason to believe there would be no delivery, I'd be reducing my energy holdings as fast as humanly possible.

Just a thought.

I know we all love to be paranoid around here, but somethings just go too far. An investment bank like Goldie Sachs does not have the capacity to take physical delivery of crude. They are paper players only.

Secondly, the GSCI is not their own money per se, but an index that investors buy. Those individuals also do have the means to accept physical delivery of crude either.

The WTI benchmark for example is a light, sweet crude, and as we know the oilfields in Texas have been in decline for 30-years now. Therefore the spectre of physical delivery is in any case remote. But if you really thought oil was running out in one or two years then, yes, you would want to take delivery.

There is an ancient maxim in commodity trading. The first thing you have to learn. The shorts always have to come to the longs. Commonly known as the short squeeze.

However, with crude plummeting at the moment, there is obviously no shortage. That means the shorts are making money and the others are long and wrong. I am quite happy to sell at $75 and buy at $50 all day long. Peak oil or no peak oil.

At some point we will rally again, but the irrational long speculator has been spectacularly punished so far in 2007!

A lot of peak oilers are simply in denial at the moment. They were in seventh heaven as prices pushed higher and higher, but now that they have reversed they simply have not come to grips with the new reality. Prices have slid 33% from their highs last year and you can make just as much money on the way down as on the way up.

[MrBill]

I got this from Goldie Sachs themselves.

Goldman Sachs Commodities Research
January 12, 2007

Recent price action inconsistent with commodity index reweightings


Commodity index reweightings have been inconsistent with recent price action across the commodity complex

The increased price volatility across the commodity complex since the start of the year has generated substantial attention on the reweighting of commodity indices that takes place in January of each year. Although the 2007 commodity weights have been public knowledge for several months, implementation of the 2007 weights has taken place this week.

A review of the commodity index reweightings reveals that the shifts have been inconsistent with recent price action across the complex. Specifically, if index reweightings were a key driver behind the recent price action, the result would have been shallower declines (or even outright increases) in those commodities that had received relatively higher weights. However, this has not been the case. In particular, WTI crude oil has declined the most of all the commodities, despite the fact the index reweightings should have lent support to WTI relative to most of the rest of the complex.

Oops.

[Jack]

Moved to Current News. Jack.

[jdmartin]

(Fortune Magazine) -- Crude oil prices hit a series of record highs in the past month, topping $83 a barrel - and that was after OPEC announced it would increase production by 500,000 barrels a day. The sharp spike went against post-Labor Day tradition, when the end of a gas-guzzling summer usually brings lower prices, and refineries head into their fall maintenance schedule.

After Goldman Sachs raised its year-end price forecast by $13, to $85 a barrel, Jeffrey Currie, global head of commodities research in London, spoke to Fortune's Eugenia Levenson about where oil is headed from here.

What's behind the recent surge in crude oil prices?
The OPEC supply increase was too little, too late. The market is in a significant deficit, the first deficit we've seen since 2003. Inventory started to drop in October of last year for two reasons. Non-OPEC supply has been extraordinarily disappointing, because those producers are hitting technical difficulties with new equipment and their existing fields are getting less productive. OPEC has the supply but hasn't brought it online. The second factor is that we're in the part of the energy cycle where extraction costs are rising and have been since 2001.

So how high will prices climb?
Our high-risk scenario is in the $90 to $95 a barrel range. I think there's high probability we'll get there, rapidly approaching 50%. The later OPEC is in responding to the higher prices, the sharper the deficit and the more critical the drawdown on inventory this winter - and the more volatile the price spikes. They'll have to respond by first quarter of next year, barring a global collapse in demand.

Why hasn't OPEC increased supply?
First and foremost, domestic demand is strong in the entire Gulf region. Exports from the Middle East are lower today than they were in 2000, but production is up two million barrels a day. There are serious bottlenecks preventing non-OPEC from growing supply even at $70 per barrel, so if I'm OPEC, I know I don't have significant competition for market share. The last reason, which is very important, is that if OPEC did ramp up production, they'd go to capacity, which would reduce their political negotiating position.

Interesting...

[FireJack]

We all know that poorer countries are having problems with supply but how long until the richer countries start seeing shortages?

[DantesPeak]

Here's an earlier thread about the same subject:


GS Updates Superspike Report/Sees $85 Oil Year End [Sep 17]
http://www.peakoil.com/fortopic32229.html

[lexicon]

Here's a link to their prediction from 2005 for what would happen to the price of oil in the next few years:

Published on 30 Mar 2005 by MSN Money. Archived on 31 Mar 2005.
Goldman Sachs: Oil Could Spike to $105

by Reuters staff

LONDON (Reuters) - Oil markets have entered a ``super-spike'' period that could see 1970's-style price surges as high as $105 a barrel, investment bank Goldman Sachs said in a research report.

Goldman's Global Investment Research note also raised the bank's 2005 and 2006 New York Mercantile Exchange crude price forecasts to $50 and $55 respectively, from $41 and $40.

These forecasts sit at the top of a table of predictions from 25 analysts, consultants and government bodies surveyed by Reuters.

``We believe oil markets may have entered the early stages of what we have referred to as a ``super spike'' period -- a multi-year trading band of oil prices high enough to meaningfully reduce energy consumption and recreate a spare capacity cushion only after which will lower energy prices return,'' Goldman's analysts wrote.

http://www.energybulletin.net/5017.html

That prediction came true today:

Oil settles above $105 on weak dollar
As forecasters cut their oil demand growth forecasts, crude prices fluctuate after briefly spiking to $105.97 a barrel.

Last Updated: March 6, 2008: 3:52 PM EST

NEW YORK (AP) -- Crude oil futures rose to another record close Thursday, boosted once more by the dollar's continuing slide to new lows against the euro.

At the pump, meanwhile, gas prices extended their own advance toward record levels. The national average price of a gallon of gas rose 0.7 cent overnight to $3.185, according to AAA and the Oil Price Information Service. Gas prices are following oil higher, and are expected to peak this spring well above last May's record of $3.227 a gallon.

http://money.cnn.com/2008/03/06/markets ... /index.htm

[heroineworshipper]

The part about reducing consumption didn't happen. Free credit in response to rising prices keeps the SUV's flowing out of the dealers.

[joeltrout]

Free credit in response to rising prices keeps the SUV's flowing out of the dealers.

Maybe the next bailout will be for SUV owners who can't afford gas.

joeltrout

[patience]

If wheat stays around $20/bu, look for SUV's at yard sales so J6P can buy bread.

[DantesPeak]

I belive I've posted the actual 'suprespike' report a year or two back. Actually it is not a prediction that oil would hit $105 but a possibility that it could in the right political circumstances.

Actually those circumstances don't exist right now, so yes I am stating that even the superspike report underestimated, well, the PO superspike we now find ourselves in.

[AirlinePilot]

I don't see the demand balance going the right way either for the pricing to adjust as they mention. At least not until we get much higher gas/diesel/crude prices. We are only in the very beginnings of slowing the growth at the moment.

[lawnchair]

Just for giggles, a few of our "superspike" threads from three years ago this week.

http://peakoil.com/fortopic6485.html

http://peakoil.com/fortopic6440.html

[BigTex]

"When we wrote that thing I had no idea that I was going to be the Treasury Secretary when oil hit $105 a barrel."