8-18-08 by dugan
Just as the White House grudgingly agreed to stop buying record-priced oil for the federal Strategic Petroleum Reserve and Saudi Arabia grudgingly agreed to put 300,000 more barrels a day of oil into the market, the investment bank Goldman Sachs made another self-serving prediction. It called Friday for $141-a-barrel oil for the next several months. Oil prices promptly spiked above $126.00.
Everyone else gets to pay Goldman Sachs and its investors. Gasoline prices roared Sunday to above $3.75 a gallon for regular nationwide and Connecticut had the painful distinction of an average price for regular above $4.00 a gallon. Diesel hit $4.80 in some areas, adding to inflation across the board, to say nothing of the truckers barely able to stay in business.
The only sure thing about such a prediction is that Goldman Sachs will make money as speculative investors rush to make it come true. Many "commodity funds," like those that Goldman sells, have a majority investment in energy futures. But they also blend in agricultural commodities, like wheat, corn and soybeans. So investors rushing to get in on the gusher are also continuing to drive up food prices.
Not everyone is on the Goldman wagon, as a chief Canadian news outlet, the Globe and Mail, reported yesterday:
Lehman Brothers analysts are as exceptional in their bearish sentiment as Goldman is for its bullish forecast. Lehman forecasts the oil prices will peak this year, then slump to as low as $70 (U.S.) by the final quarter of 2009.
In an interview yesterday, Lehman energy analyst James Crandall said his bank believes Chinese demand is artificially inflated as the country stockpiles supplies to avoid shortages during this summer’s Olympics.
He said Lehman is also more optimistic that Saudi Arabia will succeed in boosting supplies, in defiance of more hawkish OPEC members like Iran.
But Mr. Crandall noted that the Saudis have a massive capital expenditure plan designed to boost output from 10 million barrels per day to 12.5 million by 2012.
"Many of our competitors don’t believe it. But we think there are reasons to believe it will occur," he said.
And finally, Lehman Brothers suggest that exploration and production costs have flattened out, after rising for several years, a fact that will encourage more non-OPEC production to come on stream.
Goldman Sachs sees $150 and up next year. Lehman sees $70. The gap mocks any idea of a competitive market. Even if Lehman is right, billions of dollars of damage have been done, to families and the staggering economy. Getting a regulatory handle on purely financial energy trading (Goldman and hedge funds obviously aren’t selling or buying real oil) has to be the top priority for a new Congress and and new president.