Goldman Sachs Revision

Oil Higher On Goldman Sachs Revision
May 16, 2008
By John Troland, Tom Waterman
OilIntel.com

The June NYMEX crude, RBOB gasoline and heating oil contracts are expected to open higher this morning as it appears the large hedge funds and financial trading house have returned to the buy side of the market in front of the weekend. We believe that after yesterday's volatile trading session where prices jumped early, collapsed at midday and rallied hard late in the day, speculators have returned not to balance positions but to make another run at record prices.

To the best of our knowledge there is little market moving news to have prompted a sharp move higher other than the usual hype and fear mongering about supplies being inadequate to keep up with demand, plus another market-moving prediction by none other than Goldman Sachs.

Goldman Sachs told clients that they have revised higher its New York crude-oil price forecast for the second half of this year indicating it will average $141 a barrel in the second half of the year, up from its previous forecast of $107. The company said prices will rise further in 2009, averaging $148 a barrel, the bank said. We suppose that the firm was a little nervous about their longer-term options positions, given the fact that fundamentals are essentially toilet-bound.

So there you have it, another Goldman rally starts today as no doubt all the speculators will pile on this one and prices have nowhere to go but up.

These "geopolitical tensions" and supply constraints are bogus as OPEC supply and non-OPEC supply will rise this year and in case they haven't noticed, demand is weakening and will weaken further, especially as Asia starts to feel the effects of a global economic downturn.

One of the latest concerns mentioned is the catastrophic earth quake in China will increase demand for diesel fuel and put a greater strain on supplies that the bulls claim is at a breaking point. Our opinion is that these reasons we hear every day are just hype, used to cover up the real reason prices have risen for nearly four years.

Our first look at today's open outcry session suggests prices have a good chance of repeating yesterday's trade action with prices moving in both directions, however as the major speculative firms get to the office this morning, they will be jumping on this bandwagon.