The Goldman Sachs Announcement -- $80 Oil By The End Of The Year -- April 28, 2021

Before we get to the Goldman Sachs announcement, Rigzone has pointed out that retail gasoline prices in California have now reached $4 / gallon, and that's before the Newsom bans take effect. We'll see $6 gasoline in some parts of California before the end of the driving season.

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Goldman Sachs: $80 Oil

Link here.  

From social media:

At the link, one can read replies to that tweet, follow the thread.

Re-printing without the abbreviations:

The oil market is approaching a perilous intersection of resurgent demand and a limited US lower-48 supply response. 

Shale CAPEX discipline, paired with oilfield services bottlenecks (people and equipment), will limit US ramp [in crude oil production] as global demand normalizes [back to pre-Covid levels] in coming months. Goldman Sachs call is too conservative. [Writer predicts] $80 Brent by August.

Okay that was the note above, made to read more easily. The most interesting comment/reply in the thread was this (by the same writer):

It's not a perfect comparison (obviously) but if you look at Israel and vaccine trajectory and the sudden step-change DOWN in new cases, it's jarring. It that happens in the United States over a one-month period, watch out.

I've said many, many times, it's a fool's errand to try to predict the price of oil but if one quickly scrolls through multiple oil and gas media sites (news sources and social media) the "drum beat" is getting louder and louder, the "drum beat" being $80-oil. 

Had you mentioned that to me six months ago I would have a) laughed; b) rolled my eyes; or, c) yawned, but all of a sudden I'm not so sure.

Saudi Arabia's MBS has certainly been hinting at higher-priced oil. Goldman Sachs started this most recent round of $80-talk with its advisory note / announcement today. 

Jim Cramer, CNBC, says we won't see $80-oil. He says Saudi Arabia won't allow $80-oil because that would benefit US shale, and the latter would increase production.

Cramer may be correct, but it was an incredibly glib answer. But there certainly are a lot of folks talking much higher oil prices sooner than later, all of a sudden.

I find it very interesting: on the one hand we have rational folks suggesting higher priced oil sooner than later based on facts, data, reasonable projections. On the other hand we have guys like Jim Cramer telling anecdotes suggesting that we won't see higher-priced oil. [See idle rambling on a Monday night.]

Jay Powell says inflation will be transitory, that it may get worse before it gets better. One wonders if Jay Powell and the fed can predict the price of oil. If not, and if the price of oil quickly rises to $80, the "transitory" inflation Jay Powell talks about may not be so "transitory." 

I think this is fascinating.

Bottom line:

• it's a fool's errand to predict the price of oil;
• more and more rational folks are predicting the price of oil to move higher much more quickly than previously thought based on facts, data, and rational projections;
• folks like Jim Cramer saying it won't happen simply because they don't think it will happen isn't very convincing

Whenever I question whether the price of oil can move that quickly, I simply review the chart at macrotrends and it's very obvious that the norm is for oil to move higher or lower much more quickly than one might think possible.

By the way, I've always said that US shale oil production can turn on a dime compared to off-shore production and even Saudi production, but I'm not so sure this time. Drilling the wells is not the problem; fracking is the problem/challenge now and that is a bottleneck. Resources (people) and equipment have disappeared.