Goldman Sachs: Gasoline Not Driving Oil Price

Normally, I don't care for predictions, but considering this was the fellow who in 2005 said there could be a "super spike" in crude,  let's see what he has to say (I am on record as saying a "World of Shortages" theme combined with Western governments flooding the world with fiat paper can only combine to ultimately create higher prices). These are the first people (along with Cramer - have to give him kudos) who finally are realizing that the world does not revolve around the United States of Subprime; a position I've been advocating for a long while. The quicker we move away from our country-centric views, the better.

• U.S. gasoline is no longer the leading fundamental driving oil markets, according to a report penned by Arjun Murti of Goldman Sachs Tuesday. Murti who famously predicted the dawn of the “super spike” back in March 2005, says this dramatic shift could have meaningful implications for the energy markets.
• As the world’s thirstiest oil market, the health of the U.S. gasoline consumer has traditionally always led oil markets up or down. But Murti’s team, which Tuesday raised oil price targets to between $150-$200 from a $120 for the next 6-24 months, now believes the relationship could be becoming unstuck.
• “Gasoline, at least in the short-run, has traded more like an annoying by-product of crude than as its core fundamental driver,” Goldman’s report said. “Weakness in U.S. gasoline margins is not the surprise… the surprise is that the weakness not only has not mattered to crude oil markets, but if anything, is helping to keep oil supply/demand in balance.”
• Meanwhile Murti says demand for middle distillates, like diesel, gasoil, heating oil and jet fuel and kerosene is racing up.
• Murti attributes that strength to resilient non-OECD demand growth as well as numerous global power problems, all of which have led to increased usage of diesel and gasoil-fired generators. Underpinning that pressure is a lack of adequate supply growth resulting in needed demand rationing in OECD areas and in particular the United States.
• But other oil traders agree with Murti’s analysis. It’s tightness in the so-called middle part of the barrel that is sending oil prices higher. U.S. gasoline consumption patterns are no longer relevant.
• “High crude oil prices despite weak U.S. gasoline cracks is sending the signal that global oil markets do not need or perhaps want the U.S. gasoline consumer to recover,” Goldman’s report writes.
• The soaring price of middle distillates meanwhile picture paints a bleak outlook for the airline industry. [Apr 8: Now on to Airline Inflation]

I say this almost every week - we are in a global competition for resources. Our leadership is too busy pointing fingers along political lines or coming up with "gas holidays" instead of treating the root cause. This is par for the course for leadership the past few decades... come up with short term "kick the can" ideas instead of meaningful solutions. It did not hurt so much in earlier eras when we were the sole superpower; but we have a lot of nations moving up in the world who care very little about our backward policies. We will rot in our own stew if we don't start figuring these things out... read Fareed [Weekend Reading]

As your dollar becomes more worthless, buy those meats now and freeze them, and get those airline tickets bought now before fares really take off, etc etc etc - inflation is not a problem... unless you live and breathe. This is one way to get the US consumer spending again - realizing his peso will be more worthless by the hour.

Comments

[JREwing:]

Finally, an article with some sense in it. I agree completely, except for the dollar defeatist thing at the end.

One should never sell the US too short. (Since I am not american i can say that without any patriotic feelings.)

As the author says: We are in a global competition for resources. This competition will not just be decided by economic issues, but also by military power.

That's why the EUR/USD trade was a joke and I am happy to see that bubble deflating. In my opinion it should be the other way around.

There is not one European nation able or willing to secure their trade routes. Their silly diplomatic talk may draw applause by the wimps of the world, but it means nothing - poetry socialists may like it or not.

2008 May 08 04:00 AM

[yank:]

Trader:
Nice article. I guess one of the most glaring disappointments of the Bush presidency (I voted for him twice) is that as an "energy guy" here was the chance to craft a sensible energy policy that would address the concerns you talk about in your article. I am afraid W dropped the ball bigtime on this issue. A missed opportunity for sure. And I am afraid that as the "sands slip through the hourglass" we are fast running out of time to get our energy house in order. This is like a cut that goes untreated. Left alone it becomes infected and eventually destroys the affected area. We have to get serious about energy NOW. We don't have the luxury of "fiddling" while Rome burns.

2008 May 08 01:47 PM

[Glynn:]

Americans need to rise up and stop buying gas from the major oil companies, Exxon/Mobil, Shell. BP, Chevron & Texaco. Boycott these gas stations and you'll see the price drop drastically. Remember this, while you’re spending your vacation money at the pump, the oil executives and there families are going on luxury vacations around the world. Wake Up Americans! Also call your Congressman or woman and Senators and demand they put forth a bill to start drilling for oil we have right here in the US. It's past time we stop listening to the environmental whackos in this country, and drill for the oil we have here. Importing oil from the Middle East is only benefiting there economy and hurting ours. America needs to become energy independent from the Middle East and Venezuela.

2008 May 08 02:41 PM

[javier cervela:]

We are exactly at the end of an oil-regime (peak oil) and the consequences are already serious if we add the drought (green house effect) that agravates the food crisis is easy to see that radical changes in the economic structure of the world are already happening. Politicians, pundits, and economists at the service of the media and corporations do not want to confront the situation. But it is a change of historical proportions. Cervela

2008 May 08 03:18 PM

[javier cervela:]

One more thing. The dollar situation is the result of US being the largest debtor nation in the world. About 2.5 billion dollars a day are needed to finance deficits. If China and other Asian countries do it is because allow them to keep and develop their industries. About the military: Irak is a perfect indication of the limits of US military power.

2008 May 08 03:25 PM

[Commodity B...:]

You missed the part in the report where GS said that the increase in money from speculators has actually raised the price and we should be thankful for them because they allow us to discover the true price.

I almost choked on my coffee when I read that

2008 May 08 04:53 PM

[brij srivas...:]

We dont need a Goldman's paid Murthy to look amazed at oil's prices today. Oil is going through its last leg of commercial use and now there is no choice left but to take a hard look at the outer space i.e. solar energy and other alternate sources.
Any indication by US or Japanese/European/Chin... car manufacturers turn to batteries by a small fraction it will bring boiling oil to cooler climes.

2008 May 09 11:52 PM