Goldman Sachs Forecasts Higher Commodity Prices
May 11, 2021
There are a lot of differing views about the status of Colonial Pipeline and when it will return to service. But the most prominent one is that service will be restore by the weekend. Right now, all this is talk and until we make it through this and actually see progress the market will be uneasy and uncertain. So far, the futures’ market has been pretty tame, and reports indicate that racks along the east coast have seen price increases of $0.05 to $0.08 cents. There have been some reports also of trucks moving from Texas to parts of the southeast to resupply locations. Reports have also indicated that there are more imports coming into the East Coast from both the US Gulf and Europe. The other issue is that some Gulf Coast refineries have slowed down production as storage space is limited and they have not where to store barrels. Companies and traders are doing what it can to find products, but the market really needs to see Colonial back up and running soon.
Goldman Sachs forecast returns of 10.3%, 8.3%, and 11.8% on commodities over a 3, 6, and 12-month horizon, respectively, on its S&P Goldman Sachs Commodity Index. It said its baseline forecast for commodity prices include an increase in Brent prices to $80 per barrel in the third quarter, a rise in US natural gas prices to $3.25 per MMBtu in the third quarter and an increase in cooper prices to $11,000 per metric ton in 12 months. It said it expects Brent and WTI to reach $80 per barrel and $77 per barrel, respectively on a 6-month horizon. It sees the global oil market deficit, currently at around 1 million bpd and is expected to widen significantly from that level. Goldman Sachs said it continues to expect OPEC+ to accommodate any demand weakness or faster than expected increase in Iranian production, keeping oil market fundamentals tight. It still expects oil demand to reach 100 million bpd by the end of this year.
The bond market has lifted the five-year inflation outlook to the highest level since 2006, while one of the oldest hedges, gold is holding near three-month highs.
India is still dealing with its major outbreak of COVID-19 and traders keep an eye on this as India is the world’s third largest importer of crude oil.
There were some geopolitical events and so far, the market seems mostly disinterested. Fox News reports that U.S. warships fired warning shots at an Iranian speedboat near the Strait of Hormuz. The Wall Street Journal reported that Israel struck targets in Gaza as tensions in the region are on the rise.