Thursday, March 31, 2005

Buy early. Buy often. Repeat.

Goldman Sachs joins the party with the high quote. There's another article with some reactions against here and a third take here.

Among other interesting tibbits:

- Raising price forecast in 2005 from $41 to 50, in 2006 from $40 to $55. Notice that they both raised the price target and flipped from suggesting 2006 goes down to suggesting 2006 goes up.

- They believe oil markets may have to endure a 'super spike' period where prices have to spike high enough to kill off demand, which could be as high as $105 and possibly $135 a barrel, based on what percentage of income/expenditure oil now makes vrs the amount it was back in the 80's. This is sort of an ass-backwards way of looking at it, but I like it. Gasoline may need to spike to $4 a gallon to initiate demand destruction.

- They remarked that the current oil environment looks like the 1970's.

I generally agree with this, but I'm not sure I agree on the $4 gas. I think $3+ gasoline on a sustained basis (4+ months) is going to alter the universe. These guys are in NYC after all, and NYCers don't know ^&%$ about gasoline.

PS. Yeah, me too, but I used to live elsewhere so I understand gas prices.


"We believe oil markets may have entered the early stages of what we have referred to as a "super spike" period -- a multiyear 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.

``Perhaps the ultimate answer to high how oil prices need to go before demand destruction occurs is derived from knowing when American consumers will stop buying gas guzzling sport utility vehicles and instead seek fuel efficient alternatives.

``Based on our analysis of gasoline spending and the economy noted above, we estimate that U.S. gasoline prices may need to exceed $4 per gallon.''

Mr. 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.