Goldman Sachs’ Oil Forecasting Prowess

Goldman Sachs is a firm 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. You can read that piece here. http://investfortomorrowblog.com/archives/941

This week, Goldman cut their crude oil forecast by $15, which on the surface, should not get much attention. But it did get me thinking. I vividly recall spring 2008 when oil was soaring and the country was worried about it never ending. At that time, Goldman called for $200 oil when oil was $125 and had already rallied $40 in under six months. To me, it seemed like 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 their 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 their target to $200. Oil did rally for another month before utterly collapsing to $35 in less than a year.

In May 2011 (below), Goldman raised their forecast on oil, only to see it plummet almost immediately by 20%+.

In October 2012 (below), the firm lowered their target on oil, but within a few weeks, oil began a major rally.

Today, as you can see below, after oil was taken to the woodshed, Goldman cut their forecast by $15. If history is any guide and I believe it is, the next significant move in oil should be a major rally.

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.

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