The news spread instantly across Wall
Street trading desks on a Thursday morning at the end of March: “Some
analyst at Goldman Sachs says oil is going to $105 a barrel! He’s
calling it a ‘super spike’!” Within minutes the price of oil was
surging—a day later it would hit a new high of $58 a barrel. Angry
investors lashed out at Goldman, calling the report preposterous and
accusing the firm of manipulating the market to benefit its
energy-trading desk. There were calls for a government investigation.
The host of one cable TV business show wondered whether the guy who
made the call had “some type of insidious background.” A week later, at
the firm’s annual shareholders’ meeting, Goldman Sachs CEO Hank Paulson
felt compelled to defend the report and the integrity of the analyst
and his firm. Whew! Such is the nature of the oil markets these days.
So just who is this super-spike man, and what in the world was
he thinking? Well, his name is Arjun Murti, and he’s a veteran oil
analyst and a managing director at Goldman. Press-shy by nature anyway,
the poor guy was so unsettled by the reaction to his report that he
refused all interview requests—until, that is, I was able to persuade
him to take my call. He declined to have his photograph taken for this
Some will say that Murti should have realized that his
prediction would cause outrage. Not necessarily. First of all, Murti’s
report is a thoughtful, 30-page piece of logical analysis that was
grossly oversimplified by most of the media. (Al Jazeera ran one
of the more reasonable reaction stories.) Second, Murti had previously
raised the notion of a super spike in two reports last year—in June and
September—forecasting a then sensational peak price of $80 a barrel.
Last, the theory circulating that he wrote the report to benefit
Goldman’s trading desk is idiotic. (If or when Goldman pulls a lever to
jack one of its trading positions, let’s face it, you wouldn’t know
about it!) The crux of Murti’s theory is simple: We’re in the middle of a
classic boom-and-bust cycle. The economy has been heating up here and
in China, which pushes up the cost of crude. When the price of oil—and
especially, here in the U.S., of gasoline—climbs too high, it curbs
economic activity, which then depresses the demand for oil, causing
prices to drop. Nothing revolutionary there. For now, though, demand
for crude is continuing to rise—if a little more slowly than last year.
That means prices could go higher. Remember: In terms of 2005 dollars,
oil peaked in 1980 at $85 a barrel.
But isn’t all this talk about a super spike a little
hysterical? “All I did was to raise the high end of my price band from
$80 a barrel to $105 a barrel,” says Murti. “Spending on gasoline in
the U.S. relative to the overall economy is still well below where it
was in 1980-81. So demand could still climb from here.” To get to his
peak price of $105 a barrel, Murti says, there would probably have to
be a disruption in supply, as from some major terrorist action. “Most
investors are only familiar with oil cycles in the 1990s, when the
price modulated gradually and moderately,” Murti says. “The current
environment is more like the 1970s.” That may not sound like great news
for consumers or business, but remember that the ’70s weren’t a bad
time to own oil stocks. Which is the point of Murti’s report in the
first place. He’s an oil analyst. Recommending oil stocks is his
primary charge. (Exxon, Amerada Hess, and Murphy Oil are three of his picks; for some unconventional oil plays, see Pipers That Still Pay.)
His mistake may have been broadcasting that the price of a barrel of
oil could soon resemble an NBA score. Investors who cry foul might be
making a mistake by tuning him out.

Andy Serwer, editor at large of FORTUNE, can be reached at [email protected] Read him online in Street Life on and watch him on CNN’s American Morning and In the Money.