Goldman Advises Clients To Sell Brent Down To $105 (As Goldman "Client Facing" Team Is Better Buyer?)

Yesterday Goldman launched the first salvo in the crude correction trade, telling clients to take premature profits on its CCCP (crude among others) basket as we reported previously. Today, Goldman sell-side energy analyst, once again completely unconflicted and ignorant of what is happening across the Chinese wall where all those former prop traders and now better known as "client facing associates" buy on behalf of Goldman's multi-billion balance sheet, has released his latest hit piece on oil. "We expect the oil market will experience a substantial pullback toward our $105/bbl near-term Brent crude oil price target." And for those wondering, when is the last time Goldman ever dropped their oil price forecast? Well, usually a month or so before the firm hikes it to $150 (see 2008).

From David Greely

While prices are back at levels of spring 2008, supply-demand fundamentals are significantly less tight

The unfolding events in North Africa and the Middle East have pushed up Brent crude oil from $100/bbl in mid-February to over $125/bbl last Friday. These high prices levels invite comparison to the spring of 2008, when crude oil prices first breached these levels in May before peaking at over $145/bbl by early July. We believe that there are fundamental differences between now and the spring of 2008: Both inventories and spare capacity are much higher now and net speculative positions are four times as high as in June 2008.

We expect the oil market will experience a substantial pullback toward our $105/bbl near-term Brent crude oil price target

Consequently, we continue to believe that - even with the loss of Libyan production - the oil market has adequate inventory and OPEC spare production capacity to avoid the degree of physical tightness experienced in 2008 well into next year. Although the contagion risk in the Middle East and North Africa (MENA) remains elevated, and the oil market’s ability to weather the loss of supplies from another producer in the region is limited, we believe that, with the market continuing to embed at least a $10/bbl risk premium in prices, that the price risk is becoming more symmetric at these price levels as we believe that the market will experience a substantial correction toward our $105/bbl near-term target for Brent crude oil in coming months.

Consequently, we no longer believe that the risk-reward tradeoff merits a long oil position in the near-term, and we are closing our long April European ICE gasoil trading recommendation (first recommended on the January contract on November 10, 2010 at $953.25/mt, subsequently rolled to the March and April contracts for a total profit of $305.25/mt).