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Goldman sees risk oil, commodity prices could slide

Reuters) - Long-term commodity bull Goldman Sachs has told its clients there is a strong chance commodity prices may reverse and recommended they take profits on what has been a hugely profitable trade.

Goldman, one of the biggest banks in commodity markets, said clients should close the "CCCP basket" trade it first recommended in December, following gains of 25 percent in just over four months.

The trade, which encompasses a basket of commodities weighted 40 percent toward U.S. crude oil, 20 percent toward copper and 20 percent toward the energy-heavy S&P GSCI commodity index, has benefited from the surge in crude oil and other raw material prices so far in 2011.

"Although we believe that on a 12-month horizon the CCCP basket still has upside potential, in the near term risk-reward no longer favors being long the basket," Goldman's commodity research team, led by London-based Jeffrey Currie, said in a note.

"We are recommending closing the position for a 25 percent return versus a 28 percent target."

Goldman said oil, with Brent crude having gained almost a third since the start of the year to hit a 2-1/2-year

high of $127.02 a barrel on Monday, now had an equally high chance of falling as it did of rallying further.

"Not only are there now nascent signs of oil demand destruction in the United States, but also record speculative

length in the oil market, elections in Nigeria and a potential ceasefire in Libya that has begun to offset some of the upside risk owing to contagion."

Brent prices were down more than $2 a barrel from the earlier high at 12:54 p.m. EDT (1654 GMT) on Monday.

The U.S. Energy Information Administration said last week that gasoline demand in the United States -- which accounts for roughly one in 10 barrels of oil consumed globally ? had fallen 1.2 percent year-on-year amid higher prices.

Hedge fund managers and other financial investors hold a huge number of positions in U.S. crude futures, with net longs holding close to the all-time high hit in early March, data from the U.S. Commodity Futures Trading Commission showed.

Goldman also recommended clients close long positions in copper and platinum.

The bank first recommended clients go long copper in October, with the trade returning 23 percent since then.

The bank in July 2009 recommended the platinum trade, which has returned 36 percent in 21 months.

(Reporting by David Sheppard; editing by Dale Hudson)