You are here
Thank Goldman Sachs, not weather, for oil price plunge
in Commodity Index
By Michael Norman
New York Post
Monday, January 8, 2007
It might be a better idea to thank Goldman Sachs, not the weather, for the recent plunge in oil prices.
While recent balmy temperatures have certainly played a role in last week's dip in oil prices, a lesser known but equally powerful move by Goldman at the start of the year might bear some responsibility as well.
Goldman cut the energy portion by as much as 50 percent in some of the sub-indexes that comprise the widely followed Goldman Sachs Commodity Index, tamping down moves to buy them by large investment funds that mimic Goldman's index.
The changes took effect this month and apply for all of 2007, a Goldman spokesman said.
Crude oil futures plunged 9 percent Wednesday and Thursday to $55 a barrel, before settling Friday at $56.31. The two-day decline was the sharpest since December 2004.
The GSCI is influential because large institutional investors like pension funds and endowments invest according to its allocation model.
"If Goldman's model tells them to cut their energy exposure by half, they do it," says Warren Mosler, president and chief investment strategist of Valence Corp., a multi-billion-dollar hedge fund.
Mosler said cutting crude allocations by more than half will help to reduce inventories in the medium term and once those surplus inventories are liquidated prices will begin to rise again.
Last August, Goldman reconfigured its index by removing a Nymex unleaded gasoline contract that was being phased out.
The move triggered a huge selloff in gasoline almost immediately.
Prices eventually stabilized when a new contract was added, but the change produced huge losses at many hedge funds.
* * *
2007 Vancouver Resource Investment Conference
Vancouver Convention and Exhibition Centre
Sunday and Monday, January 21 and 22, 2007
Admission is free for those who register in advance. The conference has arranged discount rates at the Pan Pacific Hotel adjacent to the convention center.
GATA will hold a reception at the conclusion of the conference: from 6 to 8 p.m. Monday, January 22, in the Cypress Suite at the Pan Pacific, 999 Canada Place. The Cypress Suite is on the hotel's restaurant level, one floor above the lobby. The reception will offer snacks, a cash bar, and some brief remarks by GATA's delegates to the conference, including Chairman Bill Murphy. There will be no admission charge for the reception but so that we might prepare better, if you plan to attend please let Secretary/Treasurer Chris Powell know by e-mail at CPowell@GATA.org.
* * *
Help Keep GATA Going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at http://www.GATA.org. GATA is grateful for financial contributions, which are federally tax-deductible in the United States.