NEW YORK (
) - I've watched the oil move with a bit of pride, I have to admit.
After all, I predicted $110 a barrel prices for the second quarter of 2011 (check the videotape), and I did it in the third quarter of 2010, when oil had barely reached $80. Hitting a target mark is a great moment for reassessment and I've been doing that: For the past several days, the oil market has looked exhausted to me, looking like it needed a break.
A couple of pretty solid and interesting moves in and around oil make me fairly convinced that oil is just recharging for another run, one that will take it up to perhaps $120 by the third quarter of this year. If that happens, those integrated oil stocks that have already been market leaders will streak even higher.
First, we have
. For very obvious reasons (mostly because it makes so much damn money trading oil), Goldman has been very careful about the way it talks talk about speculation in the oil market.
In 2008, at the height of the first oil boom, Goldman clearly stated that speculation had nothing to do with rising prices. The subsequent bust in 2009 forced them to recant that blanket statement, although it's done it exceeding carefully, only admitting to a $9.50 speculative premium even at the height of the boom in 2008, when oil reached $147 a barrel.
It makes these insanely conservative estimates using the CFTC's commitment of traders reports and some black magic calculations of what effect each reported non-commercial holding has on average price, figuring that each million paper barrels of speculative holding delivers an eight-cent premium to oil's price.
Don't ask me how it comes up with that number: Remember we're talking Goldman here, so it must be right.
But here's the thing: Even in the way the underestimated-world-of- speculation effect that the oil traders at Goldman Sachs live under, a recent note from its commodity division noted that the risk premium, considering all the unrest in the Middle East, is being greatly UNDERVALUED -- even here at $104 a barrel.