The $200 Oil Call… Outrageous or Circumspect? (GS, EP, UPL, FST, EAC, KWK)

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If you thought oil prices of today are high with oil prices north of $105/barrel, imagine what a $120/barrel, or $150/barrel, or even $200/barrel oil would do.

A firm called United Energy now has a $120 target near-term for oil, and recently and at the end of February we saw Deutsche Bank ponder the thought of a $150/barrel price for oil.  Now we have Goldman Sachs (NYSE: GS) joining the fray with a call that at least ponders (not predicting) prices far north of its last $135 super-spike call that had been raised from $100/barrel.  Goldman Sachs isn’t really predicting $200 oil, but they are discussing the possibility of such.  One thing it has done is raised the lower-end floor of its 2008 to 2012 band to $60.00 per barrel.  It even noted that average selling prices were going to remain high: 

  • Average $95/barrel in 2008,
  • Average $105/barrel in 2009,
  • and Average $110/barrel in 2010.

Keep in mind this call was very much of a hedged call today that is more of a possibility and conceptual call, so don’t go out thinking that this was a do or die prediction.  Goldman Sachs did issue some favorite stocks in the oil patch as well, and it is keeping its predictions high for the sector and the commodities in there as well.  This would allow for more of these to oils to hike their dividends.  but we would note that less than a month ago we saw Goldman Sachs cut its coal targets.

It added Ultra Petroleum (NYSE: UPL) and Encore Acquisition (NYSE: EAC) to its America’s Buy List, but it simultaneously removed Forest Oil (NYSE: FST) and Quicksilver Resources (NYSE: KWK) from the list with neutral ratings.  Most refiner estimates were lowered as a result and is neutral on integrated oils in hopes of a pullback. It still has an attractive coverage view for these.  El Paso (NYSE: EP) was also raised to Buy in the coverage today to the Americas Buy List.

With oil north of $105 today, T. Boone Pickens is feeling major pain IF he is still short like he recently noted.  He’s been right the whole way up calling for $80 before he’s 80 and then calling for $100 in different calls in 2007.  Pleas keep in mind that Goldman Sachs has been making more positive calls in the group since mid to late-February so considering all of these as fresh calls is not really the case.  But a mere notion of $200/barrel is something that has many traders talking, and traders are using technical patterns and fear more and more right now.

Traders have been using oil and gold to hide out in to avoid the weakness in the U.S. Dollar.  If we see prices go that high, the United States will have to change the name of the currency to the US Peso.  We’ve already seen how OPEC is blaming the U.S. for current prices.  This would do wonders for Jim Cramer’s latest natural gas pick.

True die hard contrarians would be clamoring for this as an opportunity to sell, but being vocal about that right now would be no different than painting targets on their bodies head to toe.  In fact, finding any that are calling for the party to be over in oil is rather difficult.

Jon C. Ogg
March 7, 2008