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I made a dreadful mistake at the office today. You should know that I am the new guy around this joint, having previously written for a well-known rival outfit for more than a decade. So I've been trying to make a good impression for the first month or so. Well, that's shot to hell now ...

All I tried to do was print out an article on gasoline prices' march to $5/gallon by Memorial Day. How the heck was I supposed to know that there were 35 pages of angry readers' comments attached to the damn thing? Needless to say, I am now in the doghouse for tying up the office printer for half an hour. Still, in the end, you fine folks will be the beneficiaries of my screwup.

The Hottest Meme on the Block

You see, I am a memeticist — a student of the manner in which folks take up an idea and spread it around like some kind of contagious thought virus.

And right now, NOTHING is spreading faster than the idea that oil and gas are headed for the moon.

Gasoline Searches Peak
(Click to enlarge)

This massive viral uptake is creating a concrete "do-loop" — a monstrous self-fulfilling prophecy, if you will.

Each morning, the wise guys who work on the New York commodity trading floor writhe in pain as they gas up their Escalades and Beamers up in Scarsdale. And then they drive down the expressway to lower Manhattan, where they blithely jack the price of crude oil up another buck or five ...

Crude Oil Futures Spike
(Click to enlarge)

It's almost like the idiots don't even get the connection. Or perhaps they are just trying to get a little of their own back by the end of the day.

Regardless, as I sit to write, crude oil futures have broken through $107/barrel on news of additional production slowdowns in the Middle East and declining stateside stockpiles.

Goldman Sells Six Months Too Soon

I should like to point out that this price spike flies in the face of the 72-hour oil-patch sell-off on Goldman Sachs' strong suggestion that everyone sell their oil-oriented holdings soonest.

Eventually, crude oil will indeed choke on its own success as spiking prices spread into the rest of the economy, leading to yet another recession ...

This is not guess work or rhetorical supposition, just straightforward historical observation.

However, the past few cycles have seen crude oil — and the companies that leach their fortunes off same — trail the broader economy and stock markets collapse by a good six to nine months.

Note that while the S&P 100 began its most recent decent into hell in October of 2007, the SPDR Energy Select Sector Fund (NYSEARCA:XLE) didn't begin its own slide until July of 2008. The reason for this lag is relatively straightforward, as well: It's hard as hell to change your energy habits.

Folks can despise shelling out $50 a fill up all they like. But they still have to drag their sorry behinds into the office five days a week.

Eventually, if prices stay high enough long enough, they might just swap out their gas guzzlers for hybrids or even maybe think about moving the wife and kids back into the waste zones of America's inner cities — but not until their loans are no longer upside down, and we all know how far off that blessed day is ...

Until then, the vast majority of working folks are absolutely locked in to their wastrel ways, so the only thing that can significantly impact oil consumption is another full-blown recession.

How to Leverage a 256% "GS Fail Payout"

XLE Signals All Green
(Click to enlarge)

Speaking of that chart for the XLE, a quick glance shows us nothing but green lights for the oil patch — at least for the midterm. The stacked buy signals in place since last August continue to rule the chart.

Price is now solidly above support at the Fibonacci 23.6% retracement marker at XLE $74.14 with tons of upside room to play around in before we reach resistance at the previous high of $91.42.

I suggest using this little gift from the Goldman Magi to buy some XLE June 75 calls (XLE1130F75), available for $365 as I sit to write and carrying a posted Delta of 0.5919.

My high probability target of XLE $83.39 ought to push this contract to $825 for gains of 126%.

Now that ought to be enough for the greediest of souls. But if you are curious what a repeat of 2008's highs of $91.42 might do for you, it's $1,301 — or roughly 256%.

Source: Goldman Is Wrong, Go Long on Oil