Goldman’s Digger

Recently Goldman Sachs predicted that oil will reach $200 / bbl. I don’t know how they came up with that number, but I don’t think we’ll get there from here without some major supply disruptions.

The last couple times we saw big increases in oil prices—in the mid and late 70s—we had oil embargos and a coal strike. The energy price increases were a major part of the subsequent recessions. Supply disruptions are painful. And prices crashed afterwards.

Given enough time and high prices, consumers adjust their behavior and producers innovate. We’re in the middle of such an adjustment now. I don’t think we’re headed for a recession, but in a couple years energy use will be vastly different.

The real price of oil has fluctuated wildly since the ‘70s. In inflation adjusted dollars, a barrel cost over $100 in ‘79, and below $10 in ‘98. Right now producers seem to be in the driver’s seat. But in time, I expect them to be over a barrel.

Douglas R. Tengdin, CFA
Chief Investment Officer
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