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Goldman sees oil price 'super spike'
But others are skeptical $105 forecast is reasonable
By Padraic Cassidy, MarketWatch
Last Update: 2:54 PM ET March 31, 2005
E-mail it | Print | Alert | Reprint | RSS
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.
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Goldman sees oil 'super spike'; others are skeptical
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"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) .
Padraic Cassidy is a reporter for MarketWatch in New York.
[Harry: I am personnal very skeptical.of $105 dollars. The current spike is due to the lack of refining capacity not oil supply. Given the high price and the time it take to build new capacity I can see price remaining high and increase for the next 18 to 24 months till new capacity gets built, but I don't expect oil to double.] |
