The Stupid Phase of Oil

When I guesthosted Squawk last month, I told Mark Haines that we were about to enter the "STUPID" PHASE of Oil. He raised an eyebrow on that one.

Yesterday’s Goldman Sach’s call for $105 Crude –and the markets reaction to it — was a perfect example of what I was referring to.

At $40, we heard every rational for why Oil was overpriced — but at $55, suddenly everyone discovers religon. Now, Oil is — apparently — going to a gazillion.

Here’s an excerpt from our prior discussion about the "Stupid Phase:"

"We find it ironic that oil doubters — the ones who were so harshly negative
when Crude was between $40 and $45 — have suddenly found religon. We recall hearing about the $20 "terror premium," the
$15 bumb that speculators were causing. We were even warned that the Chinese economy was
slowing (that implied lower oil, also).

Indeed, we had heard every "excuse" for the price of oil -
except for the one that mattered: A
gradually improving global economy, one that was concentrated in Asia but particularly in
China and India. We would be remiss if we failed to note that over half of the
vehicles in our neighborhood are gas-guzzling SUVs . . . 

As oil passed $50 on the way to $55, something intriguing
occurred: The Oil Bears became rip roaring Bulls. We now enter what we
academically refer to as “the stupid phase,” with calls for $100 crude and
unsustainable gains in the energy sector.

Consider Jim Altucher‘s view:

"Goldman only changed its range from $50-$85 to $50-$105. The fact that the price of oil moved so quickly on a change in range from some analyst at Goldman tells me this move has nothing to do with the reality of oil’s supply and demand and everything to do with short-term traders jumping in and playing the game." 

As we’ve observed previously: Its rarely the news, but rather, the reaction to that news which is so telling.

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