Canadian Oil

[kraftdinner]

Goldman Sachs halves energy component in index

http://www.investorvillage.com/smbd.asp?mb=4992&mn=5098&pt=msg&mid=1175415


It might be a better idea to thank Goldman Sachs, not the weather,
for the recent plunge in oil prices.

While recent balmy temperatures have certainly played a role in last
week's dip in oil prices, a lesser known but equally powerful move by
Goldman at the start of the year might bear some responsibility as
well.

Goldman cut the energy portion by as much as 50 percent in some of
the sub-indexes that comprise the widely followed Goldman Sachs
Commodity Index, tamping down moves to buy them by large investment
funds that mimic Goldman's index.

The changes took effect this month and apply for all of 2007, a
Goldman spokesman said.

Crude oil futures plunged 9 percent Wednesday and Thursday to $55 a
barrel, before settling Friday at $56.31. The two-day decline was the
sharpest since December 2004.

The GSCI is influential because large institutional investors like
pension funds and endowments invest according to its allocation
model.

"If Goldman's model tells them to cut their energy exposure by half,
they do it," says Warren Mosler, president and chief investment
strategist of Valence Corp., a multi-billion-dollar hedge fund.

Mosler said cutting crude allocations by more than half will help to
reduce inventories in the medium term and once those surplus
inventories are liquidated prices will begin to rise again.

Last August, Goldman reconfigured its index by removing a Nymex
unleaded gasoline contract that was being phased out.

The move triggered a huge selloff in gasoline almost immediately.

Prices eventually stabilized when a new contract was added, but the
change produced huge losses at many hedge funds.
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best of luck.