Goldman Sachs' oil forecasting prowess … or lack thereof

Wall Street titan cuts its forecast for the commodity, but should anyone pay attention? If history is any guide, not really.
DEC 09, 2014
The Goldman Sachs Group Inc. is often in the limelight for hiring the best talent on Wall Street, winning the high-profile deals, having close ties to the government and paying enormous compensation. It's also a firm under intense scrutiny and often in the cross hairs. The last time I wrote specifically about one of their market calls was when they “curiously” downgraded the biotech sector in January 2014. This week, Goldman cut its crude oil forecast by $15 a barrel, which, on the surface, should not get much attention. But it did get me thinking. I vividly recall 2008, when oil was soaring and the country was worried about it never ending. At that time, Goldman called for $200 a barrel oil when oil was $125 and had already rallied $40 in under six months. To me, it seemed as though the venerable firm was caught up in the hype and hysteria, and was only inflating the bubble even more. So this morning, I did some research and found other occurrences of Goldman changing its forecast on energy. To be fair, it is certainly possible I may have missed some, but below is what I could find. As you can see below, in June 2008, with oil at $125, Goldman raised its target to $200. Oil did rally for another month before utterly collapsing to $35 in less than a year. https://www.investmentnews.com/wp-content/uploads/assets/graphics src="/wp-content/uploads2014/12/CI970401030.PNG" In May 2011 (below), Goldman raised its forecast on oil, only to see it plummet almost immediately by 20%+. https://www.investmentnews.com/wp-content/uploads/assets/graphics src="/wp-content/uploads2014/12/CI970411030.PNG" In October 2012 (below), the firm lowered its target on oil, but within a few weeks, oil began a major rally. https://www.investmentnews.com/wp-content/uploads/assets/graphics src="/wp-content/uploads2014/12/CI970421030.PNG" Today, as you can see below, after oil was taken to the woodshed, Goldman cut its forecast by $15. If history is any guide, and I believe it is, the next significant move in oil should be a major rally. https://www.investmentnews.com/wp-content/uploads/assets/graphics src="/wp-content/uploads2014/12/CI970431030.PNG" My takeaway from this is that just because Goldman Sachs is cheered, revered or sometimes jeered, doesn't mean they have a good crystal ball or make accurate forecasts. Paul Schatz is president of Heritage Capital.

Latest News

A year after sale, Commonwealth Financial and LPL start cutting staff
A year after sale, Commonwealth Financial and LPL start cutting staff

Commonwealth Financial joins a number of firm that have recently cut jobs.

Pension funds sue Primoris, allege it hid solar cost overruns from investors
Pension funds sue Primoris, allege it hid solar cost overruns from investors

A slow drip of disclosures, an executive exit, and a stock that fell hard before the suit landed

Unpaid caregivers face steeper financial hurdles on path to retirement, EBRI finds
Unpaid caregivers face steeper financial hurdles on path to retirement, EBRI finds

New research finds unpaid caregivers are more likely to struggle with debt, lower savings and diminished retirement confidence than non-caregivers.

Volatility: Best and worst of times
Volatility: Best and worst of times

Large broker-dealers and registered investment advisors have, since 2020, been developing or sticking to strategies and tactics to combat the pain of intense, short-term market volatility

Want to win in the advisor wars? Then make sure you’re offering plenty of choices
Want to win in the advisor wars? Then make sure you’re offering plenty of choices

Centaurus Financial touts its independence as a key selling point at a time when many firms are being swallowed up.

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income