Tuesday, July 28, 2009

Goldman Sachs Closes Position in December 2011 Crude

Goldman Sachs Group Inc. closed its recommendation to buy crude futures for December 2011 delivery after long dated oil prices approached the bank’s target of $85 a barrel.

Oil’s rally to a three week high has been driven by distillate fuel demand from emerging markets, Goldman said today in its Energy Weekly. This reliance on distillates, which include diesel and heating oil, “may limit further near term upside,” the bank said.

“It is still too early to argue that distillate has comfortably turned the corner,” Jeffrey Currie , a London based analyst at Goldman, said in the report. “The recent crude rally has been anomalous led by rising long-dated prices rather than by improving time spreads.”

Goldman recommended in a July 15 report that investors buy crude for December 2011 delivery and short the call options on the same contract at $100 a barrel and short put options at $65 a barrel. The combined return on that strategy is 16.2 percent, the bank said. December 2011 oil futures traded as high as $81.31 today in New York .

“We will look for future pullbacks to reinstate this position,” Currie said in the note.

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