Friday, November 21, 2008

Oil Below $50! Goldman Recants Super Spike Oil Theory (Signs of Capitulation?!)

With the OIL prices breaking beyond the $50 psychological barrier to a 22 month low (CNN Money), could we be seeing some signs of “capitulation”?

Courtesy of

Goldman Sachs, once a key proponent of the “super spike” in oil prices theory which they forecasted would lead to $200 oil have now retracted! For them, No more super spike!

This from Barron’s stockstowatchtoday,

``That ‘’super spike” in oil prices that Goldman insisted would lift crude to $200 a barrel ….? Turned out to be a dagger that has pierced Goldman itself. 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 ignomy of summarily abandoning the investors who listen to its research calls, telling them effectively that they’re on their own. 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.

``In the end, the last laugh is on Goldman, ironically enough. Back in 2005, when Goldman oil analysts first started talking about a ‘’super spike” in energy prices, the prospect of crude going to as much as $105 a barrel, as they suggested, seemed like folly. The market subsequently vindicated them. When those same analysts raised their foreecasts last March, and first spoke of the $200 price point, a lot of traders still tittered. When Goldman spoke more determinedly about $200 in May, it seemed less far-fetched.

``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, integrated majors bad to a lesser extent. Apache (APA) lost 6%, Chevron (CVX) fell 2%, and ConocoPhillips (COP) 1%. 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.”

Our comment:

The dominant perspective of the present oil dynamics had been principally anchored on the feedback loop of falling prices=falling demand equals falling demand=falling prices.

We are not convinced with the simplified theory of the "falling demand" driver as discussed earlier in Reflexivity Theory And $60 Oil: Fairy Tales or Great Depression?

Especially NOT when we see this…

Courtesy of St. Louis FED: Exploding Monetary Base! (11/20)

Or this…

Courtesy of St. Louis FED: Fed Funds Rate Below .5%!(11/20)

No comments: