Goldman Sachs Cuts Brent, Copper Price Outlook

Goldman Sachs analysts cut their outlook for the price of Brent oil and for copper going into 2012, saying that they see "a flatter upward trajectory for commodity prices, with increasing risks to both the up and the downside."

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Analysts lowered their price forecast for Brent to $120 per barrel for next year from a previous $130 per barrel forecast and also said they expected the spread between Brent and WTI crude prices to lower to $16 per barrel over three months, $13 in six months and $6.50 in a year.

The spread is currently around $25.

"The similarities between now and the fall of 2008 are startling," Goldman Sachs analysts wrote in a market note.

The slowdown in growth between the third quarter of last year and the second quarter of this year is "almost identical" to that between the third quarter of 2007 and the second quarter of 2008, they wrote.

Brent prices rose towards a peak near $120 per barrel in both periods, therefore "it is only prudent to ask if we once again find ourselves on the precipice of another sharp downturn," the Goldman Sachs analysts added.

But if what happened in 2007 and 2008 is to be taken as a lesson, it looks like emerging markets can be relatively resilient to a slowdown in developed countries like the US and Europe, unless they have to deal with financial stress either to their trade channels or to their banking systems, they wrote.

"In short, if we can avoid a global financial crisis, we can avoid a global recession."

Economic growth across the world continues to drive demand for oil well above production increases in non-OPEC member countries and the oil market "continues to draw on inventories and OPEC spare capacity in order to balance," they wrote.

"Consequently, we believe the recent market correction provides a good opportunity for consumers to begin to hedge their forward oil exposure," Goldman Sachs analysts added.

They also cut their 12-month target for copper to $9,500 per metric ton from a previous forecast of $11,000 per metric ton.

But even this downward revised target "still suggests substantial upside" from the current price of around $6,840, the analysts noted.

"We also note that the speed and magnitude of the copper sell-off suggests an accumulating short position in the market," the Goldman Sachs analysts wrote.