On Goldman and Black Gold

It wasn't deja vu all over again. It was deja vu lite.

Goldman Sachs (NYSE: GS  ) kicked off the trading week with a bang, laying the groundwork for a surge in oil stocks as it trumpeted a prediction of $85-per-barrel oil by year-end, rising to $95 a barrel in 2008. To which I reply: bunk.

And double-bunk
That's an opinion Mr. Market appears to share, by the way. As stocks resumed trading yesterday morning, only ExxonMobil (NYSE: XOM  ) and Chevron (NYSE: CVX  ) were up, but modestly. Meanwhile, BP (NYSE: BP  ) , Total (NYSE: TOT  ) , and ConocoPhillips (NYSE: COP  ) all declined a bit.

Why didn't everyone's prices jump out of their boots when Goldman said "Boo"? I've got a theory. According to Motley Fool CAPS -- where we keep track of its record -- Goldman has a habit of being right more often than wrong on stocks. But when it comes to oil prices, no one really knows where they're headed -- the "experts" least of all. Take a stroll with me through the pages of history, and you'll see what I mean.

In March 2005, Goldman shocked the world with its prediction that oil was headed for $105 per barrel, sending the prices of oil stocks surging. But how high did oil go? It briefly topped $70 a barrel in the summer, but spent most of its time in the $60s. The following year, oil prices again took a leap, but fell short of $80, and spent most of their time in the $70s. They're pushing an $80 price level this year, of course. But as you'll recall, oil prices through most of 2007 were less than what they were last year.

It's not just Goldman that got it wrong, either. Anybody remember Lord Browne, the BP CEO who in June 2006 predicted "oil prices will range in the medium term around an average of $40, and in the long run it could even be $25 to $30." Where Goldman got it wrong on the upside, BP fumbled the low ball.

Future deja vu
Not to be outdone in the gaffe game, now comes Royal Dutch Shell (NYSE: RDS-A  ) (NYSE: RDS-B  ) with a prediction of its own. Chairman Ron Oxburgh announced his bid -- $150 a barrel. Commenting in Britain's The Independent on Sunday, the Royal Dutchman opined that "once you see oil prices in excess of $100 or $150 a barrel, the alternatives simply become more attractive on price grounds."

To which I'd like to reply with a prediction of my own: On the exact number, each and every expert named above will be proven wrong.

In the big picture, though, they're saying the same thing, and about that they're correct: Over time, the price of oil will rise if oil becomes scarcer and more in demand. Over more time, rising prices will decrease demand and decrease scarcity, and prices will fall. That's why we call it a cycle, folks.

Is oil your thing? Then slip into a few more articles on the subject:


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