Back in March 2005, when I was still working as an international oil markets analyst at the US Energy Information Administration (and oil prices were about $50 per barrel), Goldman Sachs came out with its first "super spike" analysis.
UPDATE: My former colleagues at EIA are out with their latest short-term forecast. As usual, they've got prices falling back slightly in coming years ("WTI crude oil prices, which averaged $72 per barrel in 2007, are projected to average $110 per barrel in 2008 and $103 per barrel in 2009."), mainly because of a tendency to believe that high oil prices will result in slowing demand and also a supply response. We'll see, but honestly I've got to go more with Goldman Sachs on this one, as I see the supply curve as close to vertical and demand in places like China and India responding much more to income elasticity than price elasticity.
Oil markets have entered a ``super-spike'' period that could see 1970's-style price surges as high as $105 a barrel, investment bank Goldman Sachs said in a research report
[...]
``We believe oil markets may have entered the early stages of what we have referred to as a ``super spike'' period -- a multi-year trading band of oil prices high enough to meaningfully reduce energy consumption and recreate a spare capacity cushion only after which will lower energy prices return,'' Goldman's analysts wrote.
Goldman Sachs took a lot of flak for that forecast at the time (a small minority of us at EIA, myself included, thought Goldman Sachs was right on), but in the end they turned out to be almost exactly right. Today, oil prices are surging above $120 per barrel, with no end in sight. And Goldman Sachs is out with a new super spike analysis:
Oil could shoot up to $200 within the next two years as part of a "super-spike" driven by poor growth in oil supplies, investment bank Goldman Sachs (GS.N: Quote, Profile, Research) said in a research note.
"We believe the current energy crisis may be coming to a head, as a lack of adequate supply growth is becoming apparent," Goldman said in the note made available to Reuters on Tuesday.
[...]
"The possibility of $150-$200 per barrel seems increasingly likely over the next 6-24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty," Goldman said.
If oil prices do hit $200 per barrel, we can expect gasoline prices of around $6-$8 per gallon, roughly double what they are now. And no, cutting the 18.4-cent-per-gallon federal gas tax won't accomplish anything, except to take money away from the fund that pays for highway maintenance and construction and -- according to the American Road & Transportation Builders Association, result in more than 300,000 highway-related job losses, including 6,539 in Virginia.
So, what should we be doing at this point? Slash oil consumption, slash oil consumption, slash oil consumption. Did I mention slash oil consumption? Oh, and how about a crash "Apollo program" to slash oil consumption? It's a huge undertaking, now doubt, but we've got to do it for national security, economic and environmental reasons.
As Mark Warner said yesterday, we are currently funding both sides of the "war on terror," as at least some of the money we spend on oil ends up funding the very groups that seek to attack us. Much of the rest, by the way, goes to countries that are NOT particularly our friends (e.g., Saudi Arabia, source of 15 of 19 hijackers on 9/11, not to mention Bin Laden himself). It's time to get off of our "oil addiction" now. As in, immediately. Either that, or sit back and enjoy the "super spike!" :)
P.S. Note that the Goldman Sachs analysis doesn't mention "market manipulation" or any of the other ridiculous theories I've heard mentioned out there on the campaign trail. That's because this is about a vertical supply curve combined with surging world oil demand -- Econ 101, basically. But so much more fun to talk about deep, dark conspiracies, eh?