The oil price tumbled by as much as $3.25 a barrel Tuesday after the world’s biggest commodity trader called the top of the market for crude and a range of other commodities - at least for the time being.
Goldman Sachs advised its clients to sell their investments in oil, copper, platinum and cotton, arguing that record levels of speculative trading in crude have pushed their prices up so much in recent months that "in the near term, risk-reward no longer favours" holding those commodities.
However, oil bounced back above $122 on Wednesday as talks on Libya opened up divisions among foreign powers seeking a solution to violence.
After a 25% rise in the value of the CCCP basket (comprising crude oil, copper, cotton, soya beans and platinum) in four months, investors' best bet is to quit while they are ahead, it said.
Goldman has a huge influence in the market and the bank's recommendation was backed up by another influential player. The International Energy Agency (IEA) warned that crude was now so expensive that it was hitting the global economy, reducing the demand for oil and, in turn, other commodities. This is likely to result in a "less palatable route to price moderation", the IEA said.
Meanwhile, concerns about the economic outlook for China and Japan dragged commodities down further after the International Monetary Fund warned that potentially damaging credit and asset bubbles could be forming in China, while Japan’s Nuclear and Industrial Safety Agency raised the severity level of the nuclear crisis.
In a note to clients, Jeffrey Currie, global head of commodities strategy at Goldman, said that its decision in December to advise clients to invest in the CCCP basket had been "driven by an expectation of rising demand from the leading emerging market players".
Tony Dillon, of energy researcher ICIS Heren, said: “The Goldman note has certainly had an effect... people are now saying, 'Hang on, maybe we overdid it.'