tag:blogger.com,1999:blog-5235419263414453422.post5971948079066759559..comments2024-02-23T01:30:06.101-08:00Comments on Early Warning: Goldman Sachs' Bullishness on Oil PricesStuart Stanifordhttp://www.blogger.com/profile/07182839827506265860noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-5235419263414453422.post-28851266574966546762011-12-03T09:29:59.387-08:002011-12-03T09:29:59.387-08:00Or GS knows or calculates with other eventualities...Or GS knows or calculates with other eventualities and probabilities but does not want to reveal those (as they may be deemed insider infos). Rather, it finds something (which most investors will not question if comimng from GS) to base its recommendation on and is now legitimately able to alert its clients to the business opportunity. I know this sounds a bit cospiratorial (although if you read the bloomberg article on Paulson's leakage of insider info to hedge fund manager, it may have happened again), and I don't personally think they are privy to any real insider info, but they probably assign a greater probability to an Iran intervention or some other disruptive event than most other investors.Kobayashihttps://www.blogger.com/profile/06746892185924478895noreply@blogger.comtag:blogger.com,1999:blog-5235419263414453422.post-72407962260453383332011-12-02T05:04:21.546-08:002011-12-02T05:04:21.546-08:00Here's how it works, it's quite simple.
I...Here's how it works, it's quite simple.<br /><br />In 1979 the Iran-Iraq war greatly reduced the world's crude oil production causing a sharp rise in price in the 1980s. The money that came into the oil industry stimulated production causing the price to fall in the 1990s.<br /><br />By 2004 that no longer works since world crude oil production rates hit a limit that cannot be overcome. By 2008 there were again massive price increases however this time no addition expansion of crude production has been achieved since it no longer possible.<br /><br />Now there are two circumstances:<br /><br />1) Economic stimulus including quantitative easing, interest rates on loans, reserve requirement for loans, Operation Twist, etc. cause the price of oil to rise.<br /><br />2) Economic recession (defined as the time interval between economic stimulus efforts) causes the price of crude oil to go down.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5235419263414453422.post-23619139039490054482011-12-01T15:30:58.889-08:002011-12-01T15:30:58.889-08:00Hypnos: I agree there's some small but not com...Hypnos: I agree there's some small but not completely trivial near-term risk of a military conflict with Iran in which case oil prices will go into low earth orbit. But that's not the case Goldman is making.Stuart Stanifordhttps://www.blogger.com/profile/07182839827506265860noreply@blogger.comtag:blogger.com,1999:blog-5235419263414453422.post-57209384066960528192011-12-01T13:33:02.063-08:002011-12-01T13:33:02.063-08:00How about an armed conflict with Iran initiated by...How about an armed conflict with Iran initiated by Israel in which the strait of Hormuz is blockaded for a month and maybe a tanker or two sunk just outside Saudi Arabian ports?<br /><br />For the life of me I cannot understand the current European fixation with slashing Iranian oil imports. A nuclear Iran poses absolutely no threat to Europe whatsoever (I honestly do not think it poses a threat to Israel either, and I sincerely consider Ayatollah Khamenei to be substantially saner than either Nethanyau or the entire Republican presidential field).<br /><br />But the Iranian situation is the potential wild card here.Hypnoshttps://www.blogger.com/profile/01409179274970587232noreply@blogger.comtag:blogger.com,1999:blog-5235419263414453422.post-4569218312003989822011-12-01T12:05:02.482-08:002011-12-01T12:05:02.482-08:00Hi Stuart,
These links may help...
http://www.the...Hi Stuart,<br /><br />These links may help...<br />http://www.theoildrum.com/uploads/maturities06to13.jpg<br /><br />Note the above dates and shape of curve i.e. it is inverted aka backwardation which is one of the hallmarks of tightness and bull mkts.<br /><br />Now look at the next link.<br />http://mazamascience.com/Market/Futures/<br /><br />Notice the similarity (both have higher nearby prices resulting in a downward sloping curve) of the two?<br /><br />Now, in the second link, continue to press the left arrow beside the month indicated until you get to Jan 2010 which is as far as you can go. Then press one of the days inside that month. Notice the shape of the curve i.e. up. This is contango, or a "normal" mkt whereby storage and interest costs force outer contracts to be more expensive.<br />I think what Goldman is seeing (but not revealing to us unwashed : ), is exactly this inversion. It is often very bullish.Donhttps://www.blogger.com/profile/04998336790408278060noreply@blogger.comtag:blogger.com,1999:blog-5235419263414453422.post-77149103015053429022011-12-01T11:17:53.756-08:002011-12-01T11:17:53.756-08:00With regard to inventory levels, they don't se...With regard to inventory levels, they don't seem to correlate at all to price. Days of supply rose through the price spike of early 08 and then kept rising through the crash of late 08 and then kept rising even more through the price recovery of late 09.<br /><br />I think a lot of "inventory" in the oil market is not like stuff in a warehouse somewhere, but rather oil on tankers waiting to be delivered, in pipelines going somewhere, in storage waiting to be run through a refinery that might be off-line at the time, etc.<br /><br />But you're right, Stuart, I'm not at all sure where they got the idea that inventories are exceptionally low for this time of year. Perhaps the real reason for the bullish call is China's recent actions to stimulate growth and doubts about future supply expansion. Who knows?Kenneth D. Worthhttps://www.blogger.com/profile/01273763648198044270noreply@blogger.comtag:blogger.com,1999:blog-5235419263414453422.post-18122763836086267142011-12-01T06:35:01.114-08:002011-12-01T06:35:01.114-08:00Great analysis, Stuat. Maybe they are thinking abo...Great analysis, Stuat. Maybe they are thinking about strategic reserves (Non-private), but I think you are right to look at private stocks. Or given that it is G-S maybe they are trading against their published recommendation. ;)buck smithhttps://www.blogger.com/profile/10165817144159425547noreply@blogger.com