Traders were caught off guard last night after one of Wall Street'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 $127 per barrel on Monday, 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 that was 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 $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 latest 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. On the New York Mercantile Exchange, US crude oil futures for May delivery fell to $105.91, down about $4, at one point, while in London, Brent shed more than $3 to ease below $121 per barrel in mid-afternoon trading.
"We still see significant upside in soya bean prices, but believe that copper and platinum will face near-term headwinds as higher oil prices potentially translate into a negative demand shock for the metals and as these commodities are exposed to supply chain problems resulting from the earthquake in Japan," the bank said. "This is particularly the case for platinum, given its large exposure to global automobile production."
In the case of copper, which struck record highs of $10,000 per tonne in early February, Goldman said the rally was at risk as "high prices and tight credit motivate tight inventory management from key consumer China".
Hit by the concerns, benchmark copper prices on the London Metal Exchange were 1 per cent lower at under $9,800 per tonne in the afternoon. Platinum prices were also lower, with the London mid-afternoon fix coming in at $1,785 per troy ounce, against a previous fix of $1,790.