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Thursday, June 4, 2009

Green Shoots: Can't Water Them With Expensive Oil

FN: Oil (WTIC) has rallied from a low of $35.13 to a recent high of $69.05, or 96.6%. The thieves over at Goldman came out pumping oil...

Goldman Raises Year-End Crude Forecast by 31% to $85 (Update2): " Goldman Sachs Group Inc. raised its forecast for U.S. benchmark oil by 31 percent to $85 a barrel for the end of 2009 and predicted further gains next year as demand recovers and supplies shrink.

“As the financial crisis eases, an energy shortage lies ahead,” Goldman analysts Jeffrey Currie in London and David Greely in New York said in a report e-mailed today. The bank set a 12-month price target of $90 a barrel for West Texas Intermediate crude, up from $70, and introduced a forecast of $95 for the end of 2010.

Oil posted its biggest monthly gain in a decade in May, and traded above $69 a barrel for the first time since November on speculation a global economic recovery will trigger a rebound in demand. A decline in the value of the dollar has also drawn investors to crude and other commodities as an inflation hedge.

The rally has been driven by the “unwinding of pricing dislocations caused by the credit crisis,” Goldman said in the report dated June 3. It’s a “prologue,” to a price recovery in the second half of the year as the global economy stabilizes and crude inventories decline, the bank said."

FN: Inventories are continue to bump up along 19 year highs and demand continues to drop. So fundamentals are not driving this rally. That leaves a declining US dollar and speculators armed with cheap Fed bailout money. It is truly ironic that oil at these levels is actually a pretty hefty tax on a fragile world economy. A move even higher would be even worse.

Forget about "green shoots", you can't water them with expensive oil.

Couple high oil prices with rising yields and you've got one hell of a mess. Recovery? Meh. I doubt it.


Anonymous said...

Pumping the price of oil intime to dump oil from the Supertankers. They do not want to crash the market yet.

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