Goldman Sachs warned its clients of a steep price reversal in oil futures. Since Monday, oil futures dropped $6 a barrel. The barrel price of Brent crude oil rose 33% since 2011's start, an overdone rise according to Goldman Sachs.
Goldman Sachs noted that oil prices are near Spring, 2008 record prices, while supply and demand fundamentals are now less tight than 3 years ago. Goldman Sachs opines that Brent crude oil prices were likely to fall to $105 per barrel in the coming months.
The influence of Goldman Sachs' pronouncements about market direction is widely accepted, just behind the actions of banks and governments. Goldman Sachs noted that while unrest in the Middle East and cut off Libyan oil supplies were risks to the oil market, the price of oil was pushed too high by the large number of speculative trades.
Goldman Sachs found that inventories and spare capacity are much higher now, while speculation is four times higher than in June, 2008. The company estimated that every million barrels held by speculators caused a rise of 8-10% in price. Between February-March, 2011, oil price speculators accumulated 100 million barrels above their current holdings.
According to data from Goldman Sachs and the U.S. Commodity Futures Trading Commission, the current speculative premium on oil prices is 20%, or $21.40 to $26.75 per barrel.
Goldman Sachs advised its clients to close long positions on gas and oil futures used to speculate on prices for diesel and other distillate fuels.