Goldman highlights commodity dangers

Traders were caught off guard overnight Tuesday after one of Wall St's best-known commodity bulls advised clients to take profits in oil, copper and other key resources.

Goldman Sachs - the investment bank which first recommended that clients invest in crude oil, copper, cotton, soya bean and platinum in December - switched its stance, warning that the short-term risks of investing in that basket now outweighed the rewards.

The reversal comes on the heels of heady gains across the commodity markets. Oil prices in particular have climbed higher against the backdrop of turmoil in the Middle East and North Africa. Brent crude prices, for instance, rose just above US$127 per barrel on Tuesday, booking a new two-year record.

But Goldman analysts warned that, at current levels, prices were threatening demand. The bank also highlighted signs of increased speculative interest in the oil market, something evident in recent figures from the US Commodity Futures Trading Commission, which said net long positions held by financial traders in US crude oil contracts were running close to record levels.

In a separate note to clients, the bank's chief energy analyst, David Greely, said the market was likely to "experience a substantial correction", taking Brent prices down to US$105 in coming months.

Concerns about global demand were echoed by the International Energy Agency, which said preliminary data for January and February suggested that the rise was "already starting to dent demand growth".

In its monthly report, the agency warned that, with few expecting the Opec oil cartel to arrive at a formal decision to lower prices by increasing production, the oil market faced a "less palatable route to price moderation", "namely economic slowdown and weaker demand growth".

The warnings triggered weakness across the commodity markets, with Goldman also striking a cautious note on copper, where it closed the long position first recommended in October, and platinum.

Benchmark crude for May delivery edged up slightly yesterday to US$106.47, having dropped 3 per cent after Goldman's comments on Tuesday night. Brent crude yesterday rose 75c to US$121.67.

- Independent