Crude Analysis

By Steven Mufson
Washington Post Staff Writer
Tuesday, May 27, 2008

Goldman Sachs oil company analyst Arjun N. Murti and commodity analyst Jeffrey Currie are rattling the oil markets -- again.

Earlier this month, Murti, 39, and Currie, 41, raised their forecast for crude oil to $141 a barrel for the second half of this year and reiterated their prediction that oil would have a "super-spike" to $150 to $200 a barrel.

Prices jumped immediately. It was the third increase in Goldman price predictions in five months and the fifth time in four years that the firm's analysts had pushed past what people previously thought possible. Every other time the Goldman team had turned out to be right.

But not everyone's buying it. "For us, the whole circus concerning analysts mentioning ever higher round numbers has seemed a very hollow one indeed," Barclays Capital commodities analysts Paul Horsnell and Kevin Norrish said in a scathing commentary last week. "It serves little purpose to start making me-too statements just to serve as a piece of analyst bling."

If that seems a bit harsh, consider the back story.

Murti, who rarely gives interviews and did not give one for this article, is a graduate of Cornell University and son of the longtime dean of Harvard University's engineering school. He initially worked for Petrie Parkman, a Denver investment firm later sold to Merrill Lynch. He joined Goldman in 1999.

He first grabbed widespread attention in March 2005 when he issued a report saying a "spike" in petroleum prices would put crude oil in a range of $50 to $105 a barrel over six to 24 months. Prices had already doubled in the previous three years to the bottom of that range and at the time, his forecast of another leap seemed farfetched.

But six months later, after Hurricane Katrina helped push prices to $70, the Wall Street Journal ran an article saying "No one on Wall Street is laughing at Arjun N. Murti now." The next year, he was invited to join the firm's partnership pool. In September 2007, he boosted his forecast to $80 to $135 a barrel.

Still, last December, when Goldman Sachs raised its outlook for 2008 crude oil prices to $95 a barrel, it seemed like a stretch. Prices were approaching that level, but they had already climbed two-thirds in 2007 and seemed poised to slip back. By early March, however, oil prices had glided past the firm's targets and Goldman's analysts set their new target at $150 to $200.

By early May, after prices grew to $120, the Goldman team raised its 2008 forecast. It said prices could average $108 for the entire year and reach an eye-popping average of $141 for the second half.

"The $141 forecast is not too far on a percentage basis from where we are right now," Currie said Thursday in an interview from his base in London.

But just because Goldman's team has been right in the past doesn't mean its streak will continue. Some oil experts say the firm's predictions were fulfilled only because of U.S. hurricanes and an output cut from the Organization of the Petroleum Exporting Countries a year and a half ago. They fault Goldman for underestimating future oil supplies and overestimating future demand for oil, especially with prices this high. Others wonder why Goldman anticipates a big price increase later this year when supplies seem adequate, even if it does expect scarce supplies years from now. Some say Goldman -- which acts as an oil broker, runs the biggest commodity index fund, provides investment advice and trades oil on its own account -- has too many institutional conflicts of interest.


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