Want another reason to be bullish commodities?
The commodity bulls at Goldman Sachs have put out another ballsy forecast for the market, this time predicting a 17.5 per cent return for the S&P GSCI Enhanced Total Returns Index in the next 12-24 months.
Jeff Currie and his team have specifically singled out oil, copper and corn as chief contributors to the upside outbreak — all of which they say will shift into global deficits in the coming months owing to a “combination of demand and supply drivers”.
On oil, they cite increasing US distillate inventory draws as proof that despite ongoing demand issues, things may be about to change for the crude market:
While they acknowledge the turnaround may be down to adjustments in US refinery runs, which have cut use of imported oil, they explain the excess crude has more than adequately been mopped up by surging demand elsewhere:
On corn, meanwhile, the analysts refer to poor weather, which so far has led to the slowest US harvest season since the US Department of Agriculture began reporting progress in 1974. And there’s also further additional demand risk on the biofuel side too, based on their above oil assumption. As they explain:
…we believe that harvest uncertainty will likely keep corn and soybean prices volatile in the near term, with the largest upside for corn given the more adverse harvest conditions for the crop. Over the medium term, we remain most constructive on corn and maintain our 12-month corn price forecast at $4.50/bu. Despite the large expected harvest, we continue to anticipate a decline in US and global stocks/usage from already low levels primarily driven by rising biofuel demand. Combined with our constructive views on energy, we believe that risks to our corn forecasts are skewed to the upside.
Last on copper, the view is that a global recovery will lead to a pick-up in OECD demand in 2010, which will inevitably push copper prices into a higher range:
We therefore continue to view copper price dips to the lower end of the current range as buying opportunities. As the rest of the base metals have already hit our price targets, we believe upside from current levels is limited, although we believe downside risk is also small.
Goldman still bullish on crude (even in the face of weakness)- FT Alphaville