A note from Goldman has been grabbing the headlines – but for all the wrong reasons… I’d like to highlight the most important points.

Oil futures have moved significantly lower after Goldman Sachs advised investors to take profits. WTI futures set a new record high of $93.80 on Monday, but are now at $90.38.

Now when a major broker takes a major position it can become something of a self-fulfilling prophecy. First of all, the broker tells their clients, who get into that position… then the broker releases information through other paid-for outlets, such as Thomson First Call, then the press start reporting it and punters start moving in. this is what has happened with the oil price.

However, Goldman admitted that it was a tactical move.

“We are not trying to call a top here, just take profits from a tactical perspective, as prices could continue to rise in the coming weeks." It even accepted that futures could breach that magic $100 dollars a barrel level. Indeed, should the rabid hawks of Washington decide to hit the big red Iran button, prices in excess of $100 are almost certain.

It’s fundamentals, not speculation

Many observers have put the recent spike in the oil price down to speculation and speculation alone. Indeed, many have argued that these speculative gains just have to be unwound.

Goldman has proved that this was not true. Perhaps its most important point was the following:

"In fact, speculative money is at the same level it was in August when we were at $72 a barrel and, more importantly, this rally was accompanied by a decline in open interest, not a rise, which would have indicated new buying as opposed to short covering.

This point was clarified further with the following:

"It is important to emphasize that we remain longer-term positive on oil, agriculture and gold and would view price dips as opportunities to re-establish long positions.

The broker was not calling the end to a spike or the bursting of a bubble, merely predicting a technical fall after a strong performance over the last month. No market ever goes up in a straight line. There are peaks and troughs along the way.

The long-term bullish outlook for the oil price remains.

The heads of state of Opec members are scheduled to meet in Riyadh on 17 November, but no decision is expected regarding oil supply. The cartel’s Opec next meeting to set production levels is on 5 December in Abu Dhabi.

At this meeting Ecuador will be formally accepted back into the Opec fold. This means the cartel will now consist of 13 nations. Let’s hope it doesn’t give us a nasty case of triskadecaphobia… P.S. If you enjoyed this article then sign up for Smart Commodities UK. It’s dedicated to searching out the investment trends that could provide our biggest profit opportunities for the next decade…

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