Goldman Sachs Oil Call Overshadows ExxonMobil Earnings (XOM, SLB, BP, BHI, TSO, XLE, OIH)

Goldman Sachs may not be reversing its entire bullish stance on oil after oil traded over $93.00 per barrel on Monday, but it is recommending some old fashioned profit taking.  Goldman Sachs noted specifically that it is not necessarily calling a top here, but it is encouraging to take some profits and lock-in some gains.  Here was the prior equity analyst call on oil names out of Goldman Sachs.

At the end of last week, 24/7 Wall St. was looking at ExxonMobil (NYSE:XOM) ahead of earnings and we noted that its chart was not indicative of a great earnings report being priced-in.  Schlumberger Ltd. (NYSE:SLB) has been a disaster since its earnings were greeted with major selling, and BP (NYSE:BP) already noted that Q4 was going to be ugly.  The stock was not following oil prices and the price at the pump according to gasbuddy.com was not following the per barrel price trend of black gold.  Naturally, there is a "be careful what you wish for, you might get it" lesson here: yesterday at the pump the price was back over $3.00 per gallon.

This report isn’t entire out of line with Goldman Sachs’ recent lifting of its Super-Spike price band where it noted the possibilities under extreme circumstances for $135/barrel and $4.50/gallon at the pump.  Today’s call looks at a downside risk of $80/barrel at the end of Q1 2008.

You can bet this won’t change the stance of many oil bulls.  Ken Heebner of CGM is very bullish on oil properties and T. Boone Pickens recently called for $100/barrel.  Jim Cramer even went on the line and noted some key oil takeover names in Canadian Oil Sands Trusts.

The truth is that the fundamentals right now do not seem to justify the current prices, but 24/7 Wall St. still believes that $100 can easily be hit based upon the trading patterns.  There has still yet to be a single net delivery miss in and to the U.S.  If a net delivery miss were to occur you can imagine what the trading reaction will be, regardless of the price.  Traders are in charge of oil, just ask Tesoro’s (NYSE:TSO) analyst/economist that was saying just last week how the fundamentals in today’s oil markets should have oil in the $60’s rather than the $80’s or $90’s.

We still wonder if Baker Hughes Inc. (NYSE:BHI) is going to make an acquisition after that last filing for it to raise $2 Billion in cash, which has been a signal in the past since it does not need cash.

Oil is down almost $2.00/barrel at $91.60 on last look.  The Energy Select Sector SPDR (AMEX:XLE) is down over 2% to $75.47 (year range $53.89 to $78.50) and the Oil Services HOLDRs (AMEX:OIH) is down 2.8% at $188.28 (year range $125.81 to $204.62).

Jon C. Ogg
October 30, 2007