craze 2.0: Oil spike driven by Pickens and GREEN advocate Arjun Murti @ GS

Discussion in 'Wall St. News' started by ByLoSellHi, May 20, 2008.

  1. You can just feel, taste and smell the top now.

    Pickens went short oil around $100, and only recently admitted he was 'wrong.' Now he's jumping on Murti's bandwagon.

    Who is Murti? An analyst at Goldman who is avidly anti-oil; a green beatnik, if you will.

    He got lucky being right once on his first super-spike call. This new, $200 call will be his 'Henry Blodget' moment.

    In a world awash in crude oil, more than enough already accessible without exotic extraction methods, we will all look back at this and wonder how things were allowed to become so disconnected from the basic laws of supply and demand.

    Oh, that's right, oil is exempt from the supply-demand curve, and that blazing 3% annual rise in oil consumption has really torn a hole in the fabric of economic law:



    An Oracle of Oil

    Published: May 21, 2008

    Arjun N. Murti remembers the pain of the oil shocks of the 1970s. But he is bracing for something far worse now: He foresees a “super spike” — a price surge that will soon drive crude oil to $200 a barrel.

    Mr. Murti, who has a bit of a green streak, is not bothered much by the prospect of even higher oil prices, figuring it might finally prompt America to become more energy efficient.

    An analyst at Goldman Sachs, Mr. Murti has become the talk of the oil market by issuing one sensational forecast after another. A few years ago, rivals scoffed when he predicted oil would breach $100 a barrel. Few are laughing now. Oil shattered yet another record on Tuesday, touching $129.60 on the New York Mercantile Exchange. Gas at $4 a gallon is arriving just in time for those long summer drives.

    Mr. Murti, 39, argues that the world’s seemingly unquenchable thirst for oil means prices will keep rising from here and stay above $100 into 2011. Others disagree, arguing that prices could abruptly tumble if speculators in the market rush for the exits. But the grim calculus of Mr. Murti’s prediction, issued in March and reconfirmed two weeks ago, is enough to give anyone pause: in an America of $200 oil, gasoline could cost more than $6 a gallon.

    That would be fine with Mr. Murti, who owns not one but two hybrid cars. “I’m actually fairly anti-oil,” says Mr. Murti, who grew up in New Jersey. “One of the biggest challenges our country faces is our addiction to oil.”

    Mr. Murti is hardly alone in predicting higher oil prices. Boone Pickens, the oilman turned corporate raider, said Tuesday that crude would hit $150 this year. But many analysts are no longer so sure where oil is going, at least in the short term. Some say prices will fall as low as $70 a barrel by year-end, according to Thomson Financial.

    Experts disagree over the supply of oil, the demand for it and whether recent speculation in the commodities markets has artificially raised prices. As an energy analyst at Citigroup, Tim Evans, reportedly put it, trading commodities these days is like “sticking your hand in a blender.”

    Whatever the case, oil analysts like Mr. Murti have suddenly taken on the aura that enveloped technology analysts in the 1990s.

    “It’s become a very fashionable area to write about,” said Kevin Norrish, a commodity analyst at Barclays Capital, which began predicting high oil prices around the same time as Goldman. “And to try to get attention from people, people are coming out with all sorts of numbers.”

    This was not always the case. In the 1990s, oil research was a sleepy area at banks. Many analysts assumed oil prices would hover near $15 to $20 a barrel forever. If prices rose much above those levels, they figured, consumers would start conserving, suppliers would raise production, or both, causing prices to decline.

    But around the turn of the century, oil company after oil company started missing predicted production. Mr. Murti, who covers oil companies like ConocoPhillips and Valero Energy, decided to study the oil spikes of the 1970s.

    Since starting his career at Petrie Parkman & Company, a Denver-based investment firm acquired by Merrill Lynch in 2006, he had been conservative in his calls on oil. But by 2004, he concluded the world was headed for a long supply shock that would push prices through the roof. That summer, as oil traded for about $40 a barrel, Mr. Murti coined what has become his signature phrase: super spike.

    The following March, he drew attention by predicting prices would soar to $105, sending shock waves through the market. Angry investors questioned whether Goldman’s own oil traders benefited from the prediction. At Goldman’s annual meeting, Henry M. Paulson Jr., then the bank’s chief executive and now Treasury secretary, found himself defending Mr. Murti.

    “Our traders were as surprised as everyone else was,” Mr. Paulson reportedly said. “Our research department is totally independent. Our trading departments have no say about this.”

    Over time, Mr. Murti was proved right again. Oil crossed $100 in February. Mr. Murti’s forecasts now feed into many of Goldman’s economic and corporate forecasts, affecting research of companies like Ford and Procter & Gamble. His research is distributed widely among investors.

    “Even if you disagree with their views, the problem is that Goldman does carry so much credibility,” said Nauman Barakat, senior vice president for global energy futures at Macquarie Futures USA. “There are a lot of traders who are going to buy based on their reports.”

    His sudden fame unsettles Mr. Murti. He rarely grants interviews, citing concerns about privacy, and he declined to be photographed for this article. He is not the bank’s only gas prognosticator: Jeffrey R. Currie predicts oil prices out of London.

    Mr. Murti, for his part, discounts suggestions that his reports affect market prices. “Whenever an analyst upgrades a stock or downgrades a stock, sometimes you get a reaction that day, but beyond a day, fundamentals win out,” he said.

    Mr. Murti falls into the camp of oil analysts who believe that supply is likely to remain tight because of geopolitical factors. These analysts predict higher prices because production is declining in non-OPEC countries like Britain, Norway and Mexico.

    The analysts who predict lower prices say there are supplies of oil that the bullish analysts are missing. “This year will be a year in which supply will be put into the market by stealth by OPEC and by countries we call black-hole countries,” said Edward L. Morse, chief energy economist at Lehman Brothers. China is one example, he said.

    But while oil and gas prices have been rising for a while now, Americans have only just begun to reduce gasoline consumption, so their efforts to conserve have not dragged down oil prices.

    “The fact that the U.S. gasoline demand can be down and that the U.S. gasoline consumer is no longer driving world oil prices is a monumental event,” Mr. Murti says. He spends most of his time talking to money managers and analysts, many of whom keep asking him if oil prices will stay high if speculators abandon the market, and says he applauds investors for driving up oil prices, since that will spur investment in alternative sources of energy.

    High prices, he says, “send a message to consumers that you should try your best to buy fuel-efficient cars or otherwise conserve on energy.” Washington should create tax incentives to encourage people to buy hybrid cars and develop more nuclear energy, he said.

    Of course, if lawmakers heed his advice, oil analysts like him might one day be a thing of the past. That’s fine with Mr. Murti.

    “The greatest thing in the world would be if in 15 years we no longer needed oil analysts,” he says.
  3. Mr. Murti obviously believes that oil will go up to $200. But if his logic is based on demand, will oil go beyond $200? Is the "super spike" because of fundamental reasons or technical ones? How is it possible to predict when the super spike will end if it is based on demand rather than speculation?

    Does Mr. Murti believe $200 a barrel is the cut of point for Americans to start using other sources of energy? I think that it is very difficult to measure though. $6 a gallon is incredibly expensive, but still manageable in my opinion. Nevertheless, I have a hard time believing that crude oil is going up so drastically because of fundamental reasons alone.

    Mr. Murti's "super spike" is obviously one caused by speculation.
  4. the only thing that makes it feel topy to me is the fact that scamex oil stocks are running. when that happens you have to put yourself on alert that we are late in the current bull run. who knows where we go after a pullback but one is likely coming. ....but it needs to wait til june 25 (or at least stay over 120) so i can make every last penny on my oil macroshares trades lol.
  5. Just apply everything that was done wrong with the derivatives/credit bubble, or private equity, remember Sam Zeil (sp) selling at the top, and this is what is going on corruptly with crude right now, we will have all the same after bubble pop stories in crude just like this thread addressing the bullshit that went on with the credit derivatives market.
  6. I think oil has quite a bit lower elasticity of demand than that chart.
  7. Sam321


    The rise in oil prices doesn't change demand. It changes policy in governments whose economies are dependent on cheap oil. Chances are that Western governments will fight OPEC before truckers dump their trucks for Priuses.
  8. $9 a gallon (thanks to insane taxation) didn't kill Europe. $6 a gallon (thanks to $200 oil) won't kill America.
  9. Keep repeating that, and we'll all just keep ignoring that the U.S. is a highway and roadway dependent country, while 95% of Europe is not.
  10. Agreed. Sorry, Mak - you cannot make that comparison and expect it to hold, mate.

    Regardless, I keep seeing you (BLSH) making these "top" threads, but oil keeps chugging along. I think we'd all agree that a top is needed quickly as things spiral out of control, but in order for any top to stick, a serious shift in the process needs to be made (either through regulation) or someone of consequence (like Bernanke) needs to come out and say "we're not cutting anymore, the next move is back up". The major shift here has to be a strengthening dollar. Until that happens, the party goes on.
    #10     May 21, 2008