Investment Bank Sees Oil 'Super Spike' to $105

Marketwatch ^ | 03/31/2005 | Padraic Cassidy

[Hawk44]

NEW YORK (MarketWatch) - Oil prices have entered the early stages of a multi-year period of trading in which economic growth and rising demand could push oil to $105 per barrel, enough to meaningfully reduce energy consumption, Goldman Sachs analysts said Thursday.

"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," said analyst Arjun Murti.

Murti said he's surprised by the strength in oil demand and economic growth, notably in the United States and China, even after a year in which the oil price has traded in a $40 to $50 range.

Goldman's previous "spike" high for oil was $80 a barrel. The brokerage also raised spot forecasts for WTI spot oil - West Texas Intermediate spot oil, the benchmark crude that trades daily on the New York Mercantile Exchange -- to $50 for 2005 and $55 for 2006. Its previous forecasts were $41 in 2005 and $40 in 2006.

The Thomson First Call consensus estimate is for $43 a barrel in 2005 and $40 a barrel in 2006.

The call, which implies a doubling of oil prices from their current level, sent crude back above $56 per barrel for the first time in more than a week. The contract for May delivery was last quoted up 2.6 percent at $55.40, having earlier touched a high of $56.10. See futures story.

Phil Flynn, senior market analyst at Alaron.com, said $105 oil is technically possible but not likely for at least 3 years and only if a major supply disruption, such as a halt to imports from Saudi Arabia, occurred.

"The timing of the report was conducive to the rally," Flynn said. "It's just another reason to be long. There's no doubt we're in a new bull market for crude oil." Hear audio interview.

John Kilduff, energy risk analyst Fimat USA, agreed that the $105 price assumes a major supply disruption in Saudi Arabia or a Venezuelan embargo on shipments to the U.S.

"I don't know how they get to that number, short of a significant supply disruption event occurring," he said.

"It's more reflective, to be fair, of the psychology of the energy market right now that there's going to be tremendous demand growth in the late third and the fourth quarter of this year. That's going to put the producers of crude oil in an extremely challenging position in terms of meeting that demand, and that's what is being priced in right now."

Analyst Kevin Kerr of Kerr Trading International said the Goldman call was irresponsible and "clearly an attempt to talk up the market on nothing more than hot air. Goldman has huge speculative energy positions and they have no interest in watching it go down right now."

Murti also said earnings consensus for oil and gas companies ought to grow by 21 percent and 35 percent, respectively in 2005 and 2006, as those stocks stand to outperform the broader market.

The return could be 80 percent if prices hit a super spike, he said. Murti did respond to a request for comment.

Murti recommends adding to positions in the oil sector "at current prices, on a pullback, or even after rallies," and raised 2005 and 2006 earnings estimates across the board.

His top picks in the sector continue to be Exxon Mobil (XOM: news, chart, profile) , Amerada Hess (AHC: news, chart, profile) , Bill Barrett Corp. (BBG: news, chart, profile) , Devon Energy (DVN: news, chart, profile) , EnCana Corp. (ECA: news, chart, profile) , Murphy Oil (MUR: news, chart, profile) , Newfield Exploration (NFX: news, chart, profile) , Pioneer Natural Resources (PXD: news, chart, profile) , Premcor (PCO: news, chart, profile) , Questar Corp. (STR: news, chart, profile) and Suncor Energy (SU: news, chart, profile) .

[Hawk44]

The era of the gas guzzling SUV is so O-V-E-R!

[The Duke]

The era of the gas guzzling SUV is so O-V-E-R!

You make that sounds like a good thing? Perhaps you don't remember the Vega?

Don't worry, though. Our masters will still be using them.

[SolidSupplySide]

Nothing in the article mentions the possibility of new supply. For twenty years, oil companies have had no incentive to find new oil. At $55/bbl, there is now plenty of incentive.

This entire article is chicken little stuff worthy of 1979.

[RetiredArmy]

All the big whigs in D.C. ride around in some those huge limos, SUV's and big vehicles on our dollar.

[martin_fierro]

Willie didn't ride no Muni.

[ex-Texan]

When gasoline goes to $ 3.50 or more a gallon people will begin to feel pinched. The average commute today is about 40 minutes and longer when there is heavy traffic. People can afford to pay $ 2.20 a gallon. When gasoline goes higher they will begin to reconsider their priorites. Like moving out of California.

[Thebaddog]

I'm getting the feeling some Open Society dork is trying to behavior modify me on to public transportation for his financial benefit.

[Proud_texan]

"chicken little stuff"

Hehe, yup. I remember not so long ago when oil was $10 a barrel the market swore it was going to $0.

What I didn't see mentioned is the effect oil prices that high would have on emerging "hot" economies like India and China (the major source of high demand at the moment). An immediate "cooling" with rapidly decreasing demand dropping the price to $0.

[Captain Peter Blood]

Back in the early 1970's they were saying we would be out of oil by the year 2000.
In the early 1980's the "Oil Experts" were predicting $100 a barrel oil. What happened was when oil got high enough, like right now, they found more oil and we ended up with a glut on the market and the price collapsed.
Just like it will do again. My prediction is that within 24 months the price of oil will be down from the $55 barrel range, at least $20 or more.
What we need right now is a big change in our Energy Policies. More drilling for Oil and Gas on public lands, more drilling in the Gulf and certainly more drilling off the coast of California.
The Enviors have effectively stopped a lot of drilling where we know Oil is and then they are the idiots telling us we have to reduce our dependency on foreign oil, what a Catch 22 paradox.

[Sally II]

Just bought some alternative energy stocks today. If I make a bit of money off of them, maybe I'll buy the new Toyota Highlander hybrid next year. (I"m starting a family and would really like that extra space and 50 mpg. Anyhow, it'll be interesting to see what happens by the end of the year --consumer debt has gone up so much, and so many families here in CA depend on both members of the family to work to pay for a decent lifestyle and pay mortgage on a nice new home. With rising oil prices and rising interest rates, a lot of people could be feeling the pain really soon.

[kaktuskid]

Analyst Kevin Kerr of Kerr Trading International said the Goldman call was irresponsible and "clearly an attempt to talk up the market on nothing more than hot air. Goldman has huge speculative energy positions and they have no interest in watching it go down right now."

Sounds like the SEC needs to chat with Goldscum Rats!

[stevem]

My guess is at $55.00 per barrell there are lots of older wells that can't produce profitably at $35.00 that are shedding their caps. My guess is $55.00 per barrell is also providing that nice incentive to get those new sources producing, but that also takes time.

There are many other technologies that will conspire to pressure the price per barrell downward, technologies that we may have yet to dream of, not to mention possible production of hybrids in numbers that will drive the prices of them downward as well.

What I anticipate is the producers in this country will also finally tell the tree huggers to put a cork in it and attack "energy" as a commodity which will allow greater production of such things as nuclear produced electricity freeing up multiple petroleum sources for such as transportation.

Between now and then just never forget. It's all George Bush's fault.

[Osage Orange]

What did you buy...if you don't mind my asking?

[Mase]

"Nothing in the article mentions the possibility of new supply."
==

No mention of the Canada tar sand reserves holding 1.6 trillion barrels of which 175 billion are recoverable at today's prices. That would place Canada close to Saudi Arabia (265 billion barrels) in proven reserves. It's all about extraction costs and the rise in oil prices will present all kinds of opportunities for new finds.

The chicken littles are too worried about trying to save our way to prosperity than to consider the possibility of increased supply.

Goldman Sachs may be long on their futures or trying to speculate via press release. I hear the same crap about gold every time I turn on my radio.

[Sally II]

I bought a little Daystar(DSTI), Evergreem Solar(ESLR), and FCEL. Thought about buying ENER, but decided to wait and see tomorrow. I made a little off of ESLR and DSTI last month when they rallied. But they're just short term buys. I'm a little wary about keeping energy stocks long term. Oil may be going up higher, but I'm too cautious about the whole market right now to put my money on any long term bets.

[LSUfan]

Only thing that really worries me about this scenario is that it totally ignores geopolitical disruptions, which could make the spike even worse. Something is going to happen with Iran sooner or later. And al Qaeda would like nothing better than to disrupt Saudi oil flows.

[Osage Orange]

http://stockcharts.com/def/servlet/SC.web?c=ENER,uu[h,a]waclyiay[de][pc50!c200!f][vc60][iLya7,14,28!Lb7]&pref=G

ENER looks like a nice chart to me......and it appears like you bot DSTI at a nice pause in price.

Hope you make money...

Best FRegards,