UPDATE 1-Goldman says time to take profits in oil & gold

Tue Oct 30, 2007 2:31pm GMT

(Updates with detail)

LONDON Oct 30 (Reuters) - Crude oil prices are ripe for some "tactical" profit-taking after their recent rally to record highs, investment bank Goldman Sachs said on Tuesday, as it recomended closing long positions in oil, agriculture and gold.

"We...are closing our long WTI and long agriculture and gold positions. We are not trying to call a top here, just take profits from a tactical perspective, as prices could continue to rise in the coming weeks," Goldman said in a research note. The bank said oil prices could rise above $100 a barrel as key upside risks such as cold winter weather exacerbating supply shortages, a U.S. Federal Reserve rate cut, weak dollar, rising costs and royalties and ongoing geopolitical turmoilremained.

However, the risk picture was now becoming more balanced as downside risks were gaining momentum, it said.

These include increasing Middle Eastern and West African oil exports, a slowing U.S. economy, adequate heating oil inventories, the end of field maintenance in the Gulf and the potential for declines in Chinese refinery runs due to price caps that have squeezed margins.

U.S. WTI NYMEX crude hit a new record high of $93.80 on Monday.

The bank, which kept its end of first quarter 2008 oil price target of $80, said the recent oil rally was underpinned by fundamental factors and was not the result of increased speculative interest.

"In fact, speculative money is at the same level it was in August when we were at $72 a barrel and, more importantly, this rally was accompanied by a decline in open interest, not a rise, which would have indicated new buying as opposed to short covering," it said.

Goldman said the factors that propelled higher were the same driving gold and biofuel-related oil seeds prices higher as it recommended profit taking in these commodities.

"It is important to emphasize that we remain longer-term positive on oil, agriculture and gold and would view price dips as opportunities to re-establish long positions," it said.