Goldman Sachs: Oil Prices Set For "Super-Spike"

An analyst for Goldman Sachs says oil prices are set for a "super-spike" similar to those from the 1970's, with $105/bbl within sight, according to MSN. The bank said that $105 may actually be "conservative"; thanks to improved efficiency, petroleum usage, though decreased per capita, is now more pervasive (thank you, Jevon's Paradox!).

Goldman said that were it to assume gasoline spending needed to reach 1970s levels to destroy demand, its upside super-spike estimate would be $135 per barrel for New York crude.

"Perhaps the ultimate answer to high how oil prices need to go before demand destruction occurs is derived from knowing when American consumers will stop buying gas guzzling sport utility vehicles and instead seek fuel efficient alternatives.

"Based on our analysis of gasoline spending and the economy noted above, we estimate that U.S. gasoline prices may need to exceed $4 per gallon."

(All emphasis above mine.) When industry analysts say that demand destruction won't hit until Bush's "nightmare scenario", you wonder about the political implications. The Democrats, who I would bet on heavily to win the House in the 2006 midterm elections, will be the first to come out with demands to tap the strategic reserve, but this will ultimately prove futile.

Update: Sure enough, crude raced up $2/bbl on the news of the report, and also on eroding gasoline stockpiles:

The U.S. government reported Wednesday that U.S. gasoline supplies fell 2.9 million barrels to 214.4 million barrels last week, the fourth decline in a row ahead of summer when consumption peaks.

U.S. gasoline demand has been running 2 percent higher than last year in the past four weeks, despite record prices at the pump, making a 6.3 percent inventory surplus versus last year less comforting than it would appear.