Goldman Sachs Predicts Oil Prices Could Spike to $200 a Barrel Within Two Years. Are Big and Small Trucks About to Trade Places?
By: Mike Levine Posted: 05-07-08 01:17 PT
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Ford's best selling F-Series pickups can tow up to 24,000-pounds, but are they tough enough to handle a "super spike" in fuel prices? Investment bank Goldman Sachs is forecasting oil could rise to an unprecedented $200 a barrel in the next six to twenty-four months.

The report was issued by Arjun Murti, a veteran oil analyst and managing director at Goldman Sachs. Mr. Murti is known for correctly predicting that oil would jump to $105 a barrel, back when it was trading at 'only' $50 a barrel in 2005. Oil broke the century mark for the first time in January 2008 and hit an all-time record of $122 yesterday.

Mr. Murti says basic economics are behind the continued rapid run up in prices. China and other countries continue to grow faster than new fuel sources can be discovered and developed. Any drop in demand from U.S. consumers, hurting from the financial pain of $100-plus fill ups of full size trucks, hasn't offset the larger demand created by increasing numbers of drivers in emerging markets. It doesn't help that the Chinese government subsidizes fuel costs, thereby encouraging more driving in China.

Even today the effect has dramatically chilled sales of big pickups. With regular gas currently averaging $3.61 a gallon and diesel at $4.24 a gallon, the segment is tracking to fall to about 1.9 million units in 2008, from 2.5 million units three years ago, according to Automotive News.

Yet under the latest Goldman Sachs scenario, fuel prices could rise to over $6.00 a gallon, likely devastating full size pickup sales to under a million units. Short term production cutbacks could turn into long term factory closures as manufacturers struggle to reconcile output with the new level of demand. (Dodge Ram buyers who opt for Chrysler's recently announced $2.99 a gallon fuel guarantee could look like geniuses in 2009 and 2010.)

Small trucks, avoided by consumers for much of this decade because manufacturers spent new product dollars upgrading half-tons and heavy-dutys, stand ready to make a big comeback. Only about 500,000 compact pickups were sold last year, but in the 1980s and 1990s annual sales were as high as 1.1-million units. Sales of the ancient Ford Ranger are up 12.3% year-to-date through April, and last month the Toyota Tacoma moved back into the number five sales slot among the top ten selling pickups, ahead of slowing sales of the Toyota Tundra.

An opportunity is opening in the U.S. for very small diesel trucks, like Europe's Romanian-built Dacia Logan (bottom picture), to start filling in some of the empty space left behind by heavy duty and half-ton pickups. The $11,000 USD Logan has a four-cylinder 1.6-liter diesel engine. It can haul up to 1,763-lbs and achieve fuel economy ratings of 29 mpg.

The Logan will never be able to tow thousands of pounds like the F-Series but in a world where oil may reach $200 a barrel, compact trucks like it could save buyers tons of dough and, maybe, even outsell today's best selling pickups.