The Goldman Sachs Long Call on Oil

Cryptogon.com
Tuesday, January 20, 2009

WARNING: This is not a recommendation to buy, sell or hold any financial instrument.

People are hammering my inbox with this story.

I try to ignore anything that oozes out of GS. The fact that their analysis is even in the same ballpark as mine makes me wonder if my original fundamental analysis was deeply flawed. My tactical/technical analysis certainly was, as my initial nibble on oil is down something like 15%.

I am not sweating this for three reasons:

1. If you knew the size of my position, you’d laugh your tits off. It’s not much.

2. I’m slowly accumulating.

3. I smell a rat.

• A d v e r t i s e m e n t

I wouldn’t trust a GS call any further than I could throw it, and I wouldn’t piss on GS if it was on fire. I’m holding my long oil position anyway, despite what those f*&%$#@ think/say/do. A major part of my interest in buying oil was GSs’ call (back in November 2008) that there wasn’t much upside potential for oil. Have they been loading up long as they shilled it lower?

I’ll be buggered if I know.

Here’s what I do know: Below $30 I’ll start to look at taking a non-trivial long position in oil, assuming a total financial collapse/nuclear war/Mad Max situation hasn’t broken out by then…

(ARTICLE CONTINUES BELOW)

Just look at the contango situation… * shaking head * This is crazy. I don’t know what is going to happen, but something is up. Unfortunately, this will only make sense in hindsight; in the aftermath of whatever ______ (fill in the blank) is planned.

Again, it’s VERY counter intuitive to be buying a commodity that’s going lower, day after day, but I smell a rat here. The same rat that I smelled, when oil was $140, is present down here. I didn’t (and don’t) have the stones to short oil at any price. But under $40??? Come on. It’s hard for me to resist the temptation to stock up down here.

If anyone can think of a better medium to long term bet than buying oil, by all means, let us in on it.

And from a foilhead perspective: For the masters of the universe, it’s a VERY simple matter to plunge the world into an energy related crisis overnight. The Saudis could do it by staging a show at their Ras Tanura facility, arguably the most strategic energy facility in the world. One facility destroyed or damaged and oil gaps higher. Hey, if you want to keep overnighting your Lamborghini 6,500 miles to Britain for routine maintenance… Well, let’s just say that you’ve got to break a few eggs if you want to make an omelet.

Friendly reminder: This is a trading related post. If you want to comment, please make sure that the comment is related to oil, the financial markets, etc.

Via: Bloomberg:

Goldman Sachs Group Inc. commodity analyst Jeffrey Currie said he expects a “swift and violent rebound” in energy prices in the second half of the year.

Oil prices may have reached their lowest point already, after falling to $32.40 in mid-December, and are expected to rise to $65 by the end of this year, the analyst said. There is scope for a “new bull market” in oil, Currie said.

World oil demand is likely to fall by about 1.6 million barrels a day this year, the Goldman analyst said today at a conference in London. That’s bigger than the reduction expected by the International Energy Agency, which last week forecast a decrease of about 500,000 barrels a day, or 0.6 percent, this year.

A recent tactic of using supertankers to store crude oil to take advantage of higher prices later this year is “difficult” to profit from and is “near the end of this process” anyway, the Goldman analyst said.  

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